Treasury proposes to print more money to solve Kenya debt crisis

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Kenya has supported pressure from the International Monetary Fund to increase limits on Special Drawing Rights (SDRs) in a bid to resolve the country’s debt crisis. This will allow the country to print more cash for circulation – without diluting the local currency.

The proposal was made on Thursday April 1 at a conference of African finance, planning and development ministers with the World Bank and the IMF.

“We propose strengthening the limits of access to IMF facilities by reallocating existing SDRs and allocating new SDRs, including strengthening the IMF’s rapid disbursement through the Rapid Credit Facility (RCF) and (rapid financing instrument (IFR) and short-term liquidity lines, “proposed Treasury Cabinet Secretary Ukur Yatani.

Developed countries have printed billions to stimulate businesses and offer citizens stimulus checks, while developing countries have been reluctant to avoid depreciating their currencies.

Kenyan currency banknotes.

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

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

Kenya received a suspension of debt service from January to the end of June by the Paris Club of international creditors after filing a request to suspend debt service on a loan of Ksh 69 billion.

A week later, China suspended the country’s debt. The government owes China more than Ksh725 billion in bilateral debt, with the country’s total debt set to exceed Ksh10 trillion.

On March 18, IMF leaders approved a $ 2.4 billion (Ksh 263 billion) loan that Kenya was waiting for to help economic recovery.

The loan was issued under a combined arrangement under the Extended Financing Facility and the Extended Credit Facility, which the IMF says is low-cost financing. The IMF said Kenya was on the path to economic recovery, thus justifying the approval of the loan.

“Kenya’s economy is now accelerating after the shock of COVID-19, but the pandemic has left a deep imprint on the country’s fiscal and debt situation,” the IMF statement read.

According to the director general of the Office of Public Debt Management, Haron Sirima, the government plans to use part of the new loan to offset its previous borrowing in Eurobonds already due. The new loan is in addition to Kenya’s current debt of Ksh7.3 trillion.

The fourth Eurobond loan brings the total to Ksh 734 billion, Kenya’s Eurobond stock. Kenya is also seeking Ksh10 billion from the World Bank to help it procure the next Covid-19 vaccines.

According to the 2021 Fiscal Policy Statement (PBO), the cheaper loans the government was targeting had run out, pushing the country to seek external trade finance.

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

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

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