Kenya Seeks Debt Relief to Cope With Virus Pandemic

(Bloomberg) -- Kenya is exploring debt-relief options with lenders and considering a proposal by an industry body to freeze interest payments on pension assets, as the state seeks more money to deal with the coronavirus pandemic.

Talks are under way with creditors who may opt to delay payments due this year, Treasury Principal Secretary Julius Muia said by phone on Friday. He declined to identify the lenders, but specified that the talks involved bilateral and multilateral lenders, rather than Eurobond-holders.

“There are some who have given us an indication that they will forgo interest and principal in the calendar year,” he said. “We are negotiating, but what we are not doing is rescheduling.”

The discussions come after the Paris Club of creditors and the Institute of International Finance, a Washington-based trade group that represents many of the world's biggest banks and financial institutions, said last week that private lenders will work on reference terms for voluntary participation in debt-relief efforts.

Kenya estimates debt-service costs will increase to 904.7 billion shillings ($8.3 billion) in the fiscal year that begins July 1, from 805.2 billion in the current year -- more than triple the amount the government spends on health. The cost of servicing loans has grown rapidly over the past six years as the state took on more than $40 billion of debt.

Kenya faces steep refinancing risk on its domestic debt portfolio, with 35% of issued securities maturing by December, according to the Kenyan parliament's Budget Office.

Muia said the government is pursuing a proposal from The Actuarial Society of Kenya that interest payments on pension assets, 40% of which are Treasury debt, be frozen for as long as two years. That would save 60 billion shillings a year to be used on food and income security, and on enhancing medical infrastructure, Muia said.

Pension funds hold about 30% of Kenya's 3 trillion shillings of domestic debt, according to central bank data.

TASK, as the body is known, sent its proposal to entities including the Treasury, the health ministry, the Insurance Regulatory Authority and Retirements Benefits Authority. The group also proposed that the state-owned National Social Security Fund offer the state a “soft loan” of 25 billion shillings, without specifying terms that might apply.

Talks on the proposal are expected to be concluded by the end of the month, Muia said.

“It is not the whole industry,” he said. “It is those who want to participate and have their interest rolled forward.”

Fund Managers Association Chairman Jonathan Stichbury didn't immediately respond to an emailed request for comment.

Collectively, Kenyan pension funds held 1.3 trillion shillings of assets at the end of 2019. With the Covid-19 pandemic triggering layoffs and job cuts, pension contributions are under strain.

“We are therefore expecting a dip in overall pension fund assets as at the end of the first quarter of 2020,” the RBA Chief Executive Officer Nzomo Mutuku said in a letter to pension funds on March 25.

©2020 Bloomberg L.P.