Treasury Proposes Printing More Cash to Solve Kenya's Debt Crisis

Treasury CS Ukur Yatani addresses the media on November 25, 2020, in Nairobi
Treasury CS Ukur Yatani addresses the media on November 25, 2020, in Nairobi

Kenya has backed the push for the International Monetary Fund to increase Special Drawing Rights(SDR) limits in a bid to solve the country's debt crisis. This will allow the country to print more cash for circulation - without diluting the local currency.

The proposition was made on Thursday, April 1 during a conference of  African Finance,  planning, and development  Ministers with the World Bank and IMF.

“We propose the enhancement of the limits of access to IMF facilities through reallocation of existing SDRs and allocating new SDRs, including strengthening the quick disbursement of the IMF through Rapid Credit Facility (RCF) and (Rapid Financing Instrument (RFI) and short-term liquidity lines,” proposed Treasury Cabinet secretary Ukur Yatani.

Developed countries have been printing billions to boost businesses and offer citizens under lockdown stimulus cheques, whereas developing countries have been reluctant to avoid depreciating their currencies.

Kenyan Currency notes.
A photo of sample Kenyan currency notes.

Negotiations are underway to establish whether countries can use part of the SDR reallocations to pay interest on their international bonds, which would allow them to safeguard their fiscal positions without defaulting.

SDRs were introduced by the IMF in the 1970s after collapse of the Breton Woods system. The IMF allocates them in the form of a reserve asset, similar to the foreign currency reserves held by central banks. The value of an SDR is fixed to a basket of five major currencies: the U.S. dollar, the euro, the Chinese yuan, the Japanese yen, and the pound sterling in order of the fixed amount of each currency in the basket

Kenya received a debt service suspension from January to the end of June by the Paris Club of international creditors after filing for a Debt Service Suspension Initiative for a Ksh69 billion loan.

A week later, China suspended the country's debt. The government owes China more than Ksh725 billion in bilateral debt with the total debt in the country expected to cross the Ksh10 trillion mark.

IMF Executives on March 18, approved a $2.4 billion (Ksh263 billion) loan that Kenya had been waiting for to help in economic recovery. 

The loan was issued on a  combined arrangement under the Extended Fund Facility and Extended Credit Facility which the IMF said is low-cost financing. IMF said that Kenya was on an economic recovery track thus justifying the approval of the loan. 

“Kenya’s economy is now picking up speed after the COVID-19 shock, but the pandemic has left deep imprints on the country’s fiscal and debt positions,” read the statement by IMF.

According to the Public debt Management Office Director-General Haron Sirima, the government plans to use part of the new loan to offset its previous Eurobond loans which have already matured. The new loan adds to Kenya's current debt which stands at Ksh7.3 trillion.

The fourth Eurobond loan brings the total to Ksh734 billion, Kenya’s stock of Eurobond. Kenya is also seeking Ksh10 billion from the World Bank to help in procuring the next Covid-19 vaccines

According to the 2021 Budget Policy Statement (BPS), the cheaper loans that the government was targeting were exhausted pushing the country to seek external commercial funding.

Ms. Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF).
Ms. Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF).