Joy as Kenya’s Sh27b debt is rescheduled
By Hussein Mohammed 

The Government registered a major breakthrough yesterday after the Paris Club of creditors agreed to reschedule Kenya’s Sh26.6 billion ($350 million) debt.
The major rescheduling deal — brokered in Paris, France, by Finance Minister David Mwiraria — will free crucial funds to finance the Government’s ambitious poverty reduction programme.
A statement by the Paris Club indicates that the amount rescheduled is out of Sh36.8 billion ($484 million) that is due over a three-year period ending 2006.
The meeting was chaired by Mrs Stephane Pallez, a co-chairperson of the Paris Club. She is also an Assistant Secretary for European and International Affairs at the French Treasury of the Ministry of Economy, Finance and Industry.
This latest debt deal, according to the statement, will reduce Kenya’s debt servicing due to the Paris Club creditors to a manageable Sh11.2 billion ($147 million).
The total stock of Kenya’s external debt is estimated at Sh395.2 billion ($5.2 billion) as at end 2002. However, the stock of debt owed to Paris Club creditors as at end 2003 is estimated at Sh144.4 billion ($1.9 billion).
The creditors meeting also required that Kenya seeks comparable treatment on its external public debt from its other external creditors, notably the London Club.
"Paris Club creditors and the representatives of the Government of the Republic of Kenya consider that this rescheduling should allow Kenya to graduate from future Paris Club treatments," read in part the statement.
Kenya, however, did not qualify for debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) initiative. It was agreed that Kenya’s debt was sustainable and "did not require any forgiveness".
Officials said Kenyan delegates were reluctant to pursue debt forgiveness due to concerns that such a move would put off potential creditors.
The Paris Club statement said the rescheduling was intended to "further support the continuing efforts on economic recovery undertaken by the Kenyan Government under the current International Monetary Fund (IMF) arrangement."
The IMF resumed lending to Kenya in late November 2003, ending almost a 10-year suspension. Other international donors followed suit, pledging to give Kenya a staggering Sh310 billion over the next three years. 
The fresh donor cash inflows had already helped eased Government’s domestic debt, freeing up additional resources towards the economic recovery efforts.
Observers contend the current debt deal will restore the Government’s debt sustainabity, while providing for an increase in resources for priority poverty reduction spending. It will also enable Kenya achieve its medium-term development.
During the Paris meeting, Kenya argued that it needs to reschedule its external debt to redirect funds to fighting poverty and build reserves to cushion against the volatility of aid inflows.
The IMF says that despite the fresh funds, Kenya is expected to have a financing gap in Government spending and debt repayments of an average of Sh98.8 billion ($1.3 billion) per year in the 2003/04 to 2005/06 fiscal years.
The Paris Club is an informal group of official creditors which meets regularly in Paris to consider requests by its debtors to postpone debt repayments or agree on reducing debt service obligation in the case of confessional rescheduling.
The statement indicates that the rescheduling was in accordance with Houston terms, meaning that official development assistance (ODA) aid credits to be repaid over 20 years, including 10 years grace, at concessionary interest rates terms.
Commercial loans are to be repaid over 15 years, including five years of grace at an appropriate market interest rate.
Paris Club members involved in the rescheduling include Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Britain and the United States.
Market dealers said a deal with the Paris Club would reduce the Government’s need to purchase dollars for debt repayments in the local currency market, which may help support the shilling.
Kenya has a good record of servicing its foreign debt which, including arrears, stood at Sh387.6 billion ($5.1 billion) or 49 per cent of the Gross Domestic Product (GDP) by the end of 2002. Of the total debt, 31 per cent is owed to Paris Club creditors, according to the IMF.

http://www.eastandard.net/headlines/news17010407.htm

Saturday, January 17 , 2004