KQ debt pain scuttles Kenya Kwanza budget cuts

 KQ debt pain scuttles Kenya Kwanza budget cuts

Kenya Airways defaulted on both the guaranteed and non-guaranteed portion of Kes64.6 billion loan promting the government to commence the process of taking over the burden.

Kenya Airways’ legacy debt has stopped the Kenya Kwanza government from realizing expenditure cuts after guaranteed loan payments jumped more than six-fold to Kes14.6 billion in the latest mini-budget submitted to parliament.

Treasury has not given an explanation on why it has bumped up payment for the loan in this financial year from Kes2.2 billion that had been budgeted for but the increase has pushed the total Kenya Airways loan to Kes84.4 billion to be paid through 2026.

The new government had hoped to manage the country’s economic crisis by curtailing spending that had fueled growth in the country’s debt to unsustainable levels.

However, sticky expenditure such as the commitment to intervene and offer financial support to the country’s national airline when it struggled to repay debts as a result of the Covid-19 pandemic has made it difficult to curb spending.

President William Ruto had hoped to cut expenditure by up to Kes300 billion but revised estimates show spending increased from Kes3.36 trillion to Kes3.37 trillion but with a narrower borrowing target.

The Hustler government has admitted to International Monetary Fund (IMF) cutting expenditures was a difficult task given it took up tens of billions in undisbursed expenses from the previous administration, extra-budgetary spending, hustler fund launch, and a host of other subsidies.

Read also: Foreign Affairs, Interior budgets slashed in fresh estimates

Kenya Airways defaulted on both the guaranteed and non-guaranteed portion of the loan and the government started the process of taking over the liability. 

Initially, the Kenya government told the International Monetary Fund it will take over KQ loans amounting to $485 million (Kes59.7 billion) that it had guaranteed the carrier as part of its rescue plan for the troubled airline but budgetary figures seem to suggest the airline loan may be bigger than initially suggested.

Kenya Airways defaulted on part of its $525 million (Kes64.6 billion) loan from the Private Export Funding Corporation (PEFCO) of the USA and guaranteed by Exim Bank of USA, who in turn were guaranteed by the Government of Kenya.

The Airline’s decade-long loss-making position is set to extend into the eleventh year after they issued a profit warning in anticipation of earnings falling 25 percent lower than the Kes15.88 billion loss reported in the year ending December 2021.



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