Tuesday, January 31, 2006

Kenya May Miss Debt Relief

Kenya is unlikely get to debt relief, a confidential report by the World Bank says.

This follows International Monetary Fund’s (IMF) rejection of the Government’s appeal, last month, to benefit from multi-lateral debt relief even if Kenya does not qualify for the Highly Indebted Poor Country Initiative (HIPC).

The report says while anti-debt activists continue to press Kenya’s case, the failure to secure debt relief is politically damaging for the Government.

"Kenya’s campaign comes at a time when creditors are feeling somewhat burned bycountries that had been favourites for aid and debt relief, including Ethiopia and Uganda, which are again facing governance problems," it says.

But as activists continue to press for debt relief, the country’s internal political and governance problems continue to be the main source of poor developmental performance.

Finance minister David Mwiraria has also been trying to gain favour of the activists by linking Kenya’s debt to its poverty reduction strategy. He claims that Kenya is "as needy, in fact more needy, than the countries that have got the debt waiver."

Until recently, Kenya has not been lobbying for debt relief. This is partly because debts have been manageable and the country has long considered itself better off than many of its neighbours.

Government officials argue that the HIPC selection system rewards over-borrowing while punishing them for managing their debt more effectively.

Kenya has a total stock of long-term and publicly-guaranteed external debt of $5.7 billion as at 2003, the last year for which comprehensive data are available.

However, this debt stock is equivalent to only 26 per centof GDP and 109 per cent of exports.

Hence the country is classified as only ‘moderately indebted’ by the

World Bank and keeps it well below the HIPC qualification thresholds.

The report indicates that Kenya has improved its macroeconomic management, with a projected growth rate of five per but there are stillquestions about its performance.

The multilateral debt relief initiative did not include other non-HIPCs, notably Vietnam, Indonesia, Sri Lanka, Nigeria, Lesotho, and Kenya.

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