Debt forgiveness calls grow louder
By
MOSES MICHIRA | April 9th 2020 at 09:10:00 GMT +0300
National Treasury Cabinet Secretary Ukur Yatani (right) with Principal Secretary in the ministry Julius Muia at a past event. The CS has admitted Kenya's rising debt burden is a threat to fiscal sustainability. [David Njaaga, Standard]
More than 100 civil societies have joined the call for debt forgiveness to enable poorer countries, including Kenya, to wade through the Covid-19 mess.
Kenya is among the world’s most vulnerable nations in debt servicing, with the available resources hardly enough to meet the running of basic services.
Debt repayment is ordinarily the first charge on government revenues, meaning maturing loans must be settled before any other expenses, including salaries for public workers.
Among the organisations rooting for cancellation of external loan repayments are ActionAid International and Oxfam.
They join the International Monetary Fund (IMF) and the World Bank that have already made similar calls.
Further, they are seeking provision of emergency additional financing in grants to help the countries whose economies are hurting from the disruptions caused by the pandemic.
Severe implications
Covid-19 has had severe economic implications for Kenya and other poor countries, with projections indicating that the growth rates could slow by half.
Jubilee Debt Campaign, a UK-based coalition of civil societies, is leading the plea on debt forgiveness, citing that it is the only means to enable the poor countries fight coronavirus.
“All principal, interest and charges on sovereign external debt due in 2020 should be cancelled permanently, they should not accrue into the future,” demanded the civil societies.
“Cancelling debt payments is the fastest way to keep money in countries and free up resources to tackle the urgent health, social and economic crises resulting from the Covid-19 global pandemic.”
Kenya’s ability to service external loans was precarious even before the pandemic, which has so far claimed six lives at home.
Cumulative external debt owed to lenders is over Sh3.2 trillion, with scheduled repayment in the current financial year estimated at Sh350 billion, according to official data.
Without a restructuring of the repayments, the country lacks the means to make the settlements, which are all foreign currency denominated.
The pandemic has ravaged major sectors of the economy such as agriculture and tourism, translating to depressed contribution to the national kitty in taxes.
“Developing countries are being hit by an unprecedented economic shock and at the same time face an urgent health emergency. The suspension on debt payments called for by the IMF and World Bank saves money now but kicks the can down the road and avoids actually dealing with the problem of spiralling debts,” the campaigners said.
IMF and World Bank are among Kenya’s biggest lenders, with their messaging suggesting that they would, at the least, consider restructuring the loan repayment schedules.
China, which has funded major infrastructure projects, including the Sh500 billion Standard Gauge Railway, has not yet committed to negotiating on repayment terms.
Technocrats at the National Treasury had already voiced their concerns long before the pandemic, saying the soaring fiscal deficits and the stock of foreign debts were a cause for worry.
Support fund
Treasury Cabinet Secretary Ukur Yatani indicated in the debt management strategy paper released in February that the huge debts are a “threat to fiscal sustainability”.
At the time, the economy was cushioned from the ravages of Covid-19, which are today manifesting in closed factories and massive layoffs.
In an attempt to keep Kenya afloat, the World Bank and IMF have unveiled a multi-billion-shilling support fund following their respective commitment to push through debt reliefs for the worst-hit struggling economies.
They have also called on official bilateral creditors to provide immediate debt relief to the world’s poorest countries.
“Poorer countries will be the hardest hit, especially ones that were already heavily indebted before the crisis,” World Bank president David Malpass told IMF’s International Monetary and Financial Committee.
“Many countries will need debt relief. This is the only way they can concentrate any new resources on fighting the pandemic and its economic and social consequences,” said Mr Malpass.