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Uhuru’s second term has been marked by one clear feature; rebuilding the bridges that he so recklessly burned back in 2013. Although the reconciliation with Raila Odinga which was epitomised by the famous Handshake may be his most well-known truce, he has been forced to eat words that his administration once shouted with reckless abandon. In 2013, having swept to power against all expectations, and considered pariahs by the West due to their ICC cases, anti-West rhetoric was common. However, Uhuru has now been forced to seek IMF help, with the Chinese breathing heavily down his neck.
Kenya had expected to extend a debt repayment moratorium from bilateral lenders, including China, which started in January 2021, by another six months to December 2021, saving it from making payments of nearly Sh50 billion to Beijing lenders.
Chinese lenders, especially Exim Bank, were uncomfortable with Kenya’s push for extension of the debt service suspension with rich nations, prompting delays in disbursements to projects funded by Chinese financiers.
This forced Nairobi to drop its push for the debt repayment holiday extension by China for fear of straining relations with Kenya’s biggest bilateral creditor.
Having been pushed to the wall, and running out of options, the country is now considering using reserves from the International Monetary Fund (IMF) to compensate for Chinese loans it repaid after the Treasury dropped an earlier request to defer debt payments.
The Treasury says it could use its additional allocation of IMF reserves in Special Drawing Rights (SDR) assets, which can be converted to government-backed money, as one of the options to plug the budget hole.
SDRs are the IMF’s unit of exchange based on sterling, dollars, euros, yen and yuan, and can be used to settle obligations like repayment of foreign public debt.
The IMF is expected to play a role in shaping policy that would require the government to implement tough conditions across many sectors.
The conditions are tied to the fund’s multi-billion shilling loan facilities to Kenya where money flows straight into the budget to top up the public purse.
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