Additional reporting by Brian Okoth
Narok North MP Moitalel Ole Kenta has urged the Kenyan Government to request for a 10-year grace period from China in regard to the settling of the Ksh626 billion-plus loan that Kenya borrowed from the Asian nation.
As at December 2018, Kenya had borrowed Ksh626.2 billion from China.
A March 2019 report by the National Treasury revealed that Kenya spent nearly Ksh15.43 billion on servicing loans from China in the July-December 2018 period. That figure represented 22.05 per cent of the Ksh69.45 billion Kenya spent on settling foreign debt.
And now, due to the economic hardship wrought by the coronavirus crisis, Narok North lawmaker, Ole Kenta, wants the Kenyan Government to write to Beijing, requesting a 10-year grace period as the borrower finds her feet on how to deal with the highly infectious respiratory disease.
Kenta, who addressed the press at Ilariak in Narok North on Thursday afternoon (April 2), said the 10-year leniency period should not attract any penalty interests.
“Kenya’s economy is currently on its knees due to the coronavirus pandemic. Our greatest income-generating sectors, including tourism and agriculture, have taken a hit following the outbreak of COVID-19. As a result, China should grant us a 10-year grace period when it comes to loan repayment. In the ten years, they shouldn’t expect us to meet our loan obligations, or shouldn’t impose penalties over unsettled debts,” said Ole Kenta.
To cushion Kenyans from the financial effects of COVID-19, the legislator urged the Government to issue an edict ordering banks and landlords to suspend loan or rent payments by borrowers and tenants respectively who are in the informal sector.
The MP also urged his community members to dismiss myths suggesting that persons of Maa descent are “immune” to coronavirus.
“They should all observe the precautions issued by the Ministry of Health in regard to the fight against COVID-19. They should maintain proper hand hygiene and observe social distancing guidelines,” said Ole Kenta.
What Ole Kenta is asking the Kenyan Government to do in regard to the Chinese loan, is called restructuring a debt, which includes requesting for a debt relief.
The debt restructuring process can be carried out by reducing the interest rates on loans or by extending the dates when a borrower’s liabilities are due, says Investopedia.
Unlike businesses that are often placed under receivership when they breach their loan agreement, a country is often faced with a number of options, including the opportunity to restructure the debt.
Debt relief: a brief history
The Office of the United Nations High Commissioner for Human Rights says during the first 25 years after the Second World War, few countries requested debt relief.
By the end of the 1970s, however, serious balance of payments problems and high levels of external debt caused many countries to do so. Since the late 1970s, creditor countries have repeatedly modified debt-relief efforts, making them increasingly generous.
At the Millennium Summit in 2000, Heads of State and Government undertook “to implement the enhanced programme of debt relief for the heavily indebted poor countries without further delay and to agree to cancel all official bilateral debts of those countries in return for their making demonstrable commitments to poverty reduction”.
Over the past half-century, 85 developing countries, including 52 low-income countries, have been unable to service their external debt and requested debt relief from their creditors.
For a borrower country to enter into a debt relief agreement with the creditor country, the World Bank and the IMF must be involved.
The World Bank and IMF should come to an agreement with authorities from creditor countries on the requirements that need to be fulfilled (the so-called completion point triggers) for the country to receive irrevocable debt relief. Once a country reaches its decision point, it may immediately begin receiving interim relief from some creditors upon its debt service falling due.