• Sat. May 14th, 2022

Kenya rejects G20 debt relief initiative due to restrictive conditions

ByTina R. Wimmer

Mar 11, 2021
Kenya’s Finance Minister Ukur Yatani speaks during an interview with Reuters at his office in Nairobi, Kenya, May 15, 2020. /Jackson Njehia/REUTERS
Kenya’s Finance Minister Ukur Yatani speaks during an interview with Reuters at his office in Nairobi, Kenya May 15, 2020. REUTERS/Jackson Njehia REFILE – CLARIFYING INFORMATION

Kenya will not seek suspension of debt payments as part of a G20 initiative to help poor countries overcome the COVID-19 pandemic, its finance minister said on Friday, saying the terms of the agreement agreement were too restrictive.

Minister Ukur Yatani spoke to Reuters in an interview saying he was also concerned about the impact debt relief could have on the country’s credit rating.

Last month, the Group of 20 major economies agreed to suspend payment obligations on bilateral debt held by their least-developed counterparts until the end of the year. The aim was to free up more of the $20 billion that poor governments could use to strengthen their health services.

Kenya will not seek suspension of debt payments as part of a G20 initiative to help poor countries overcome the COVID-19 pandemic, its finance minister said on Friday, saying the terms of the agreement agreement were too restrictive.

Minister Ukur Yatani spoke to Reuters in an interview saying he was also concerned about the impact debt relief could have on the country’s credit rating.

Last month, the Group of 20 major economies agreed to suspend payment obligations on bilateral debt held by their less-developed counterparts until the end of the year. The aim was to free up more of the $20 billion that poor governments could use to strengthen their health services.

However, Yatani said he was concerned that the terms of the agreement limiting countries’ access to international capital markets during the standstill could hamper Kenya’s ability to finance its deficit later in the year.

“We are afraid of creating a crisis unnecessarily,” he said.

The East African nation is instead engaging creditor countries such as Germany, Sweden, Japan, China and France individually in a bid to secure moratoriums on debt service payments. a period of approximately one year.

“We haven’t concluded the negotiations, but it’s going well,” he said.

The G20 initiative only covers official bilateral debt, although it calls for the voluntary participation of private lenders on comparable terms.

A third of Kenya’s external debt, which stands at 3 trillion shillings ($28 billion), is owed to private creditors, including the holders of the country’s two Eurobonds.

“The G20 debt relief initiative does not offer optimal benefit given the structure of Kenya’s debt portfolio,” he said. “Each country adapts to the situation according to its own circumstances.”

The pandemic caused the government’s budget deficit to swell to 8.2% of GDP in the fiscal year ending June, compared to an initial forecast of less than 7%, mainly due to reduced tax collection. taxes and lost revenue in the form of VAT and revenue. tax reductions.

But the deficit is expected to narrow to 7.3% – or 823.2 billion shillings – in the 2020/21 financial year and to 4.2% of GDP by 2023/24, Yatani said.

“Kenya is taking a cautious approach in seeking debt relief from bilateral creditors to preserve its sovereign credit rating,” he said.

Moody’s downgraded Kenya’s outlook to negative from stable on May 7, citing the shock caused by the COVID-19 pandemic to its tourism industry and agricultural exports.

On Tuesday, the IMF raised its risk of debt distress from moderate to high.

The Minister sought to reassure investors, saying: ‘We have sufficient reserves to handle our payments for the year ahead.’

The government has included a 55 billion shillings stimulus package aimed at preserving jobs and consumer demand in next year’s budget, which will be presented to parliament on June 11.

The money will go to grants for small businesses such as hotels and nature reserves hard hit by the collapse in tourism.

The economy is expected to grow 3% this year, falling to 2.5% if the crisis worsens, against an initial forecast of more than 6%, Yatani said.

He attributed the forecast, which is higher than that of the IMF and the World Bank, to adequate rainfall across the country, which will boost food production.