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An employee arranges a display of smartphones at a Safaricom shop in Nairobi. , Photo Simon Maina/AFP via Getty Images

(Bloomberg) -- The Kenyan government signaled caution on relinquishing more control over companies part-owned by the state including Safaricom Plc, the nation’s biggest firm by market value.

The Nairobi Securities Exchange has said it’s in talks with officials over the sale of additional stakes in already publicly traded state companies, a program expected to raise as much as 300 billion shillings ($2.8 billion).

But any such decision over Safaricom is only possible if matched by other key shareholders, Stanley Kamau, acting director general of public investments and portfolio management at the National Treasury, was cited as saying by NTV.

The Kenyan government and U.K. carrier Vodafone Group Plc -- along with its South African unit Vodacom Group Ltd. -- each hold 35% in the mobile-banking pioneer that accounts for almost two-thirds of the Nairobi market’s capitalization.

“Given the strategic and security issues around Safaricom, we would not want to go below Vodafone,” Nairobi-based NTV quoted Kamau as saying.

“If Vodafone is willing to go 10%, we can go 10%,” Kamau said. “But I don’t think we’d want to get diluted as the government on Safaricom.”

A decision to attach conditions to possible divestments represents a pushback by Kenya’s government over losing sway over companies that contribute the biggest dividends to state coffers.

Kenya State Firms’ Stake Sales May Raise as Much as $2.7 Billion

While the state is open to slashing its stake in the nation’s biggest power producer -- Kenya Electricity Generating Co. -- to 60% or close to half from 70% currently, it doesn’t intend to become a minority shareholder in the loss-making Kenya Power and Lighting Co., according to Kamau.

“Given the strategic nature and monopolistic tendency of KPLC, I’m not sure we would want to move away from 50% and move to about 45%, where the government loses control on a monopoly,” Kamau said.

The government won’t privatize Kenya Pipeline Corp., which manages fuel distribution from the port city of Mombasa to the rest of the country and four neighboring countries including Uganda, Rwanda, Burundi and the Democratic Republic of Congo. - Bella Genga, Bloomberg News

Patients crowd outside the Nyeri County Referral Hospital as they wait for their temperatures to be checked on November 18, 2020. IMF considered the impact of Covid-19 pandemic in recent tranche. Photo Nation Media Group

Countries in the region led by Rwanda and Tanzania are drawing benefits from over $142.7 million in debt relief from the International Monetary Fund (IMF).

This comes even as the Bretton Woods institution last week approved a third tranche of grants for debt service relief, for 28 member countries, under the Catastrophe Containment and Relief Trust (CCRT).

Rwanda leads the region in the countries that enjoy the highest debt relief at $71.23 million, followed by Tanzania at $26.43 million. Burundi is third at $25.42 million, while Ethiopia wraps up the list at $19.71 million, latest figures from IMF shows. Kenya, South Sudan, and Uganda are not part of the 28 countries that were picked to benefit from the debt relief programme.

IMF April 2021 approval follows two prior tranches approved on April and October 2020, and now enables the disbursement of grants from the CCRT for payment of all eligible debt service totalling $238 million, falling due to the IMF from its poorest and most vulnerable members from April to October this year.

“This tranche of grants for debt service relief will continue to help free up scarce financial resources for vital emergency health, social, and economic support to mitigate the impact of the Covid-19 pandemic,” IMF said, adding that subject to the availability of sufficient resources in the CCRT, debt service relief could be provided for the remaining period through from October 2021 to April next year, amounting to $964 million.

For the region, Tanzania has so far enjoyed $26.43 million in relief under the first two six-month tranches that expires the end of this month.

According to IMF, Covid-19 continues to have an adverse economic impact on Tanzania, as its growth is projected to be 2.8 per cent in FY2020/21, down from an expected 5.9 per cent before the pandemic.

“The main driver of the deceleration is the impact of lower global demand on the tourism sector, which accounts for 15 per cent of GDP, and 35 per cent of exports. The external shock is expected to widen Tanzania’s current account deficit to 5.1 per cent of GDP, opening a financing gap of about one per cent of GDP. The fiscal impact of the pandemic is estimated at about 0.5 per cent of GDP, mainly due to lower tax revenue collection,” IMF said.

But it is Rwanda which has the highest benefit in the latest approval, as it expects to enjoy over $42.76 million in debt relief over the next twelve months ending April 2022.

“Covid-19 continues to have a severe impact on Rwanda. Weak global demand, supply chain disruptions and a strict economic lockdown affected all sectors of the economy,” IMF said of Kigali, adding that its fiscal and external financing needs rose to 5.1 and 4 per cent of GDP, respectively in the 2020/21 financial year.

“More than half of these financing gaps have since been filled by the two Rapid Credit Facility (RCF) disbursements and concessional financing from development partners,” it said.

Burundi, which has so far enjoyed $14.52 million in debt relief in the past one year, is also eyeing a further $10.9 million in the next year ending April 2022.

IMF said that the current account deficit of Burundi, including grants, is expected to grow to 20.7 per cent of GDP, putting pressure on already low reserves, because of the pandemic.

“The pandemic has also created large fiscal financing needs: Tax revenue is expected to drop to 17 per cent of GDP (from 17.4 percent of the higher pre-pandemic GDP projection), spending is projected to rise by 3.4 percent of GDP, and as a result the fiscal deficit including grants is expected to rise to 9.5 percent of GDP. Several adverse pandemic effects are expected to persist in 2021,” it said.

Bujumbura has committed to use the resources freed by Fund debt service relief under the CCRT to help provide emergency health, social and economic support to the economy to mitigate the impact of the pandemic on life and livelihood of the population.

Ethiopia will have the least debt relief in the region, over the next 12 months at $1.35 million. Addis has so far enjoyed $18.36 million since April last year when the programme was launched.

For Addis, lower imports and higher-than-projected merchandise exports offset a decline in services exports, primarily from air travel and tourism, and remittances, leading to a narrower-than-projected current account deficit of around 4 per cent of GDP.

“However, shortfalls in foreign direct investment, including due to a delay in the privatisation of the Ethio-Telecom, led to an underperformance in reserve accumulation,” IMF said.

Ethiopia has agreed to use the resources freed by the initial tranche of Fund debt service relief under the CCRT, to help provide emergency health, social and economic support to the economy to mitigate the impact of the pandemic on life and livelihood of the population.

In March 2020, IMF managing director Kristalina Georgieva launched an urgent fundraising effort to raise $1.4 billion in grants for the CCRT. This would enable the CCRT to provide financial assistance for relief on debt service for up to a maximum of two years, while leaving the CCRT adequately funded for future needs.

So far, donors, including from the European Union, the UK, Japan, Germany, France, the Netherlands, Switzerland, Norway, Singapore, China, Mexico, Philippines, Sweden, Bulgaria, Luxembourg, and Malt have pledged $774 million in contributions. - Allan Olingo, The EastAfrican

The government has acknowledged that it has broken its own domestic debt ceiling to a level which it calls "unhealthy domestic borrowing."

The amount of debt that the government has acquired from the domestic market has gone up to Shs 6.8 trillion which is more than 1 per cent of Gross Domestic Product (GDP), initially set as the maximum. 

The total debt, foreign and domestic will grow to 52 per cent by the end of the financial year, which is also above the 50 per cent ceiling that Uganda has agreed on with the other East African Community (EAC) countries with the support of the International Monetary Fund (IMF). On the whole, the region’s debt stock has risen to $112 billion or 58 per cent of the GDP (2019) with Kenya and Rwanda having the highest ratios.

The debt levels have been further pushed up by the effects of the COVID-19 pandemic and the need to contain the virus spread. With economic growth declining sharply and in some cases to negative rates, there are now calls for the governments to go for credit relief and other measures. Equally, there are growing calls for the IMF to approve the issuance of special drawing rights (SDRs) to assist developing countries in their economic recovery.

The SDR is an international reserve asset, created by the IMF to supplement its member countries official reserves. So far Shs 204.2 billion (equivalent to about $281 billion) SDR has been allocated to members according to the IMF. The United Nations Conference on Trade and Development (UNCTAD) estimates that Africa will require $200 billion to address the financial and socioeconomic impacts of the global pandemic.

At a dialogue between government and the civil society, the Uganda Debt Network (UDN), SEATINI Uganda, Civil Society Budget Advocacy Group (CSBAG), Transparency International and the African Forum and Network of Debt and Development urged other countries to press the IMF to release up to $3 trillion.

However, the organisations have cautioned the government that even if these options mature to their favour, there is a need to control the rate of borrowing. UDN executive director, Julius Kapwepwe says that if Uganda and the other countries are to borrow, they should borrow for sectors that directly improve the livelihoods of the masses.

"If you looked at the East African Community we’re at $120bn by 2020/21 so GDP at 50% indebtedness or not is not the bigger discussion. The Japans, the Germanys of this world actually have higher percentage. The challenge is about the capacity to be able to set your obligation. What is important for me is that out of those huge figures, it is about that bridge or that health centre [upcountry] which they say out of staffing capacity of 23 medical personnel expected, consistently there has been 7 partly because government cannot afford to recruit the required staffing," said Kapwepwe. 

The government is also accused of being extravagant with both own and borrowed resources, which is a result of poor planning. SEATINI Uganda executive director Jane Nalunga gives the example of the high cost of administration, saying the many administrative units are created without putting in mind the cost of maintaining them.

"There is the issue of government expenditure, government is spending like we’re America. We have been talking about this. The administrative budget is so huge, our parliament is so huge, the administrative budgets are a burden. Why should we have such a huge parliament? There is also the prudent use of resources, last time I heard they wanted to borrow to work on the environment and you say really? Here we are giving away Bugoma forest, cutting down trees but we’re getting a loan to work on the environment," Nalunga said. 

The ministry of Finance, Planning and Economic Development says domestic borrowing has gone up to 1.1 per cent of GDP and will go further up to 1.6 per cent next financial year. Samson Muwanguzi Joash, the acting assistant commissioner in the domestic debt office, says domestic debt cannot be avoided because of its benefits over foreign debt.

He says much as foreign debt interest rates are lower, the loans carry other costs like conditions and the risks associated with changes in foreign exchange rates over the loan period. Domestic loans are also easy to get since they are acquired from within the country which makes them good for emergency case borrowing.

Muwanguzi says, the government had projected the domestic debt level to rise to Shs 6.3 trillion but this will go to Shs 6.8 trillion when it acquires the loan for the initial investment in the East African Crude Oil Pipeline this month.  

Meanwhile, the government of Uganda is planning to issue an infrastructure bond to fund infrastructural programs without borrowing from banks. A bond is an instrument issued by the government or a company that needs to borrow money. Basically, the person who gets the bond invests in the said project and is paid after the date of maturity, with interest.

The government can decide to buy back the papers before the date of maturity. Acting Commissioner, Muwanguzi says the plan is on to issue the bond, but the government has not yet decided on the date for issuing it. - URN/The Observer