This archive report was first published on 11 June 2020.
The European Union has joined multilateral institutions in offering Kenya cheap loans to combat the Coronavirus disease and support small businesses. The total loans lent to Kenya now stand at Sh214 billion.
The EU's Sh7.8 billion support to Kenya adds to Sh22 billion from the African Development Bank, Sh78 billion from the International Monetary Fund, and Sh106 billion from the World Bank. These long-term, low-interest loans with a grace period before repayment will help the Treasury balance its books.
Treasury Secretary Ukur Yatani said, "We have been looking at our debt portfolio to see if there are ways to reduce the commercial loans with concessional ones. Of course, the concessional ones are ready. You ask the World Bank to give you money, they will give it to you. You ask AfDB, they will give it to you, and these are highly concessional loans."
He noted that the interest rates on these loans will be one or 1.5 percent with a five-year or ten-year grace period. In contrast, commercial loans are borrowed at eight percent.
The EU loan is targeted spending, with Sh1.2 billion directly funding welfare support through cash transfers, Sh2.4 billion offered to SMEs as short-term working capital, and Sh600 million directed at maintaining supply chains for trade, ensuring food security, and access to critically required medicines.
Recent concessional loans from multilateral institutions come at a time when bilateral donors are also offering debt relief. The Paris Club has offered debt relief that could save Kenya Sh72 billion in debt servicing this year, while China has offered to pause payments for 77 developing countries to complement the G20 offer.
However, commercial lenders are adamant about concessions to developing countries, warning that requesting debt relief will have dire consequences. The Institute of International Finance (IIF) has stated that negotiations will be between each borrower and lender, will take a long time, and are not likely to succeed.
