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Kenya Borrowing Spree Halted as IMF Conditions Bite

GBR Team 13/01/2021

Kenya’s unchecked borrowing for new projects has been put on brakes as tough IMF conditions for seeking debt relief from international lenders kick in.

Budget expenditures will also come under tight scrutiny as government is forced to cut wasteful spending and shelve unnecessary projects.

Big ticket projects will likely be affected and public sector jobs will be cut.`

Spirits are said to be high in some Treasury departments that have previously opposed what they see as rogue borrowing forced upon them for projects of questionable value for the economy.

Faced by mounting debt repayments against falling revenue collections, the Kenya government has had to seek debt relief from multilateral and bilateral lenders to avoid defaulting.

‘Monday, the Paris Club of G20 donors announced a temporary waiver of debt repayment for a period of six months providing the government with about Sh32billion of head room to operate.

The Deal also paved way for Kenya to negotiate with other bilateral lenders for waivers especially on expensive commercial debt.

Repayment for China’s Standard Gauge Railway loans kick in next month (February) and loom as the biggest headache for Treasury.

Treasury is currently in negotiations with the Chinese government for a waiver but it is not clear if that will include the commercial component of those loans which constitute the largest portion.

In its latest disclosures for example, Treasury indicates that it took the SGR loan in two tranches of of which was commercial. By 2018, the disclosures show, the outstanding amount on the non-commercial tranche was Sh149billion, while that on the commercial one was Sh170bn.

In one year, the interest on the non-commercial Chinese loan grew by Sh9bn based on a rate of Libor+3, while that on the commercial loan grew by a staggering Sh41bn.