An ambitious debt repayment plan unveiled by the Treasury to reduce Kenya's Sh6.3 trillion debt has run into a major setback in the wake of the Covid-19 outbreak.
The Jubilee administration set the country on the path of rapid accumulation of debt to fund an expensive expansion of infrastructure, mainly in the roads, ports, energy and railway sectors.
This has seen Kenya's annual debt repayment bill grow to Sh630 billion, accounting for a third of all the tax revenues, with its total debt-to-GDP ratio surging past the 50 per cent threshold.
Kenya must pay a total of Sh572.9 billion as debt and interest in the current financial year, which ends on June 30.
It is not yet clear how much of this had already been paid before the outbreak.
Treasury Principal Secretary Julius Muia did not pick our calls or respond to our messages on the same.
A breakdown by the National Treasury shows that out of this, Sh131.4 billion will go towards principal debt repayments.
The remaining Sh441.5billion, which is the bulk of the repayments, will go towards servicing the interest.
In the new financial year that kicks in on July 1, Kenya will need to pay a total of Sh630.1 billion. This is a 10 per cent growth from the current year.
This comes at a time when several institutions, among them the World Bank Group and the International Monetary Fund (IMF), and leaders are calling for debt repayment holidays, interest waivers and debt restructuring by various lenders to help shield developing countries at this time when their economies are preparing to take a hit from the lockdowns.
In a joint statement issued this week to the G20 concerning debt relief for the poorest countries, the World Bank and the IMF warned that the coronavirus outbreak is likely to have severe economic and social consequences for IDA countries, home to a quarter of the world's population and two-thirds of the world's population living in extreme poverty.
"With immediate effect - and consistent with national laws of the creditor countries - the World Bank Group (WBG) and the International Monetary Fund (IMF) call on all official bilateral creditors to suspend debt payments from IDA countries that request forbearance," the statement said.
"This will help with IDA countries' immediate liquidity needs to tackle challenges posed by the coronavirus outbreak and allow time for an assessment of the crisis impact and financing needs for each country," it added.
The World Bank Group and the IMF said they believe it is imperative at this moment to provide a global sense of relief for developing countries as well as a strong signal to financial markets.
The World Bank and IMF are jointly giving Kenya at least Sh130 billion to deal with the twin crisis brought by locusts and coronavirus.
The two multilateral lenders have already disbursed Sh8 billion and are now considering fresh requests of about $1.15 billion, which translate to about Sh122 billion at current exchange rates, that Kenya has sought to cope with the adverse economic effects of Covid-19.
Similar calls have been raised here at home by various leaders, among them the ANC party leader Musalia Mudavadi, who now wants China to suspend Kenya's debt payment due to the pandemic.
"Covid-19 began from China to the very best of everyone's knowledge. It is also true that as we face debt repayment challenges as a nation, our largest creditor is China," he said.
"China has a moral obligation to accede to a fresh look at Kenya's debt portfolio. An engagement with Kenya's Treasury is of the greatest essence. Some of these repayments are either due or are soon falling due. China must open up avenues for interest waivers, debt restructuring and deferring some of the debt repayments," the ANC leader said.
This year, Kenya will pay at least Sh50 billion to china's Exim bank after the five-year grace period that Beijing extended to Nairobi for the standard gauge railway (SGR) funds expired in January.
The loan, whose interest is 3.6 percentage points above the six months average of London Inter Bank Offered Rate (Libor), which serves as an international benchmark, is to be repaid in 15 years with a grace period of five years.
Treasury data tabled in the National Assembly had shown that principal payments to Exim Bank of China - the main SGR financier - would shoot up to nearly Sh34.8 billion in the financial year 2019/20 from Sh6.07 billion in the last fiscal year, and Sh8.39 billion in 2018-19.
In Cabinet Secretary Ukur Yatani's debt repayment strategy, unveiled this year, Treasury would use the increase in tax collections and all the savings from ministerial budget cuts to repay the debt and deal with the ballooning pension bill.
The strategy, outlined in the 2020 Budget Policy Statement (BPS), said that the bulk of the savings would go to the Consolidated Fund Services, specifically for debt repayment, pensions and gratuities.
The BPS notes that despite the depressed revised revenue forecasts for 2019/20 and 2020/21 fiscal years vis-à-vis original estimates for both years, collections in 2020/21 are now projected to grow by Sh89.8 billion, from Sh1.76 trillion to Sh1.85 trillion.
"The National Treasury proposes that the additional revenue be directed towards Consolidated Fund Services (CFS), specifically debt repayment, pensions and gratuities, and some salaries for Constitutional Offices and Independent Commissions," the BPS reads in part.
"These are non-discretionary expenditures, which take first charge in the public budget," the BPS adds.
From the projected additional revenue in 2020/21, an estimated Sh57.2 billion will be earmarked for debt repayment.
"This focus on debt repayment is in accordance with the Government's deficit financing policy, which is elaborated in both the BPS, 2020 and the Medium Term Debt Management Strategy," the document notes.
The balance from the anticipated revenue growth, which is approximately Sh19.7 billion, will be earmarked for retirees' pension payments as well as GoK contribution to civil servants' pension.
"The enhanced allocations are intended to make up for shortfalls experienced in FY 2019/20, which was due to slower than targeted processing of pension payments," the documents notes adding that clearly, the Sh89.8 billion revenue growth is itself inadequate to cover the above-mentioned CFS, which will therefore be supplemented with part of the 'savings' from reduced National Government net issues.
But this plan is now set for major adjustments as the government now directs limited resources towards survival measures.
The revenue shortfalls will also make it almost impossible for Treasury to keep to this plan.