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Kenya eyes WFP-brokered debt swap for food security
Treasury Cabinet Secretary John Mbadi gestures during an interview with Reuters where he says Kenya has started talks with IMF for a new program, in Nairobi, Kenya, February 5, 2025.
Kenya has advanced its plans for a ‘debt-for-food security’ swap brokered by the World Food Programme (WFP), which would see the country sink millions of shillings towards farming initiatives.
In a debt-for-food security swap arrangement a creditor agrees to forego outstanding payments, whether in part or whole, from the debtor country on a commitment that it will use the freed-up resources towards bolstering food security initiatives such as school feeding programmes and agricultural development.
“We have received very many proposals for debt swaps which run into hundreds of millions of shillings including a debt-for-nature and debt-for-food security swap,” National Treasury CS, John Mbadi, said on the sidelines of the IMF/World Bank Spring Meetings in Washington DC.
“We have a proposal from the World Food Programme on a debt-for-food security swap and it is at a very advanced stage, being the first among many. Already, it is being analysed by the National Treasury,” he added without providing details on the value of the debt swap under consideration.
In the current financial year, Kenya’s debt service obligation stands at Sh1.87 trillion of which Sh995.7 billion is related to interest payments while the remaining Sh871.49 billion is related to redemptions.
If the ‘debt-for-food security’ swap comes to fruition, Kenya will be looking to draw lessons from Egypt which has had two debt-for-food security swaps brokered by WFP, and Mozambique which has had one such arrangement.
In 2009, Egypt managed to relieve itself of $15 million (Sh1.2 billion at the time) worth of debt service following a WFP-brokered debt-for-food security swap arrangement with Italy. Proceeds from the swap were ring-fenced for nutritional rations targeted at school-going children in the Fayoum, Menia, and Beni Suef regions over a five-year period, which lapsed in 2014.
In 2017, Mozambique undertook a $40 million (Sh4.1 billion at the time) debt swap arrangement with Russia whose proceeds were ring-fenced for a five-year long school nutrition programme targeting 150,000 students.
In 2020, Egypt again managed to relieve itself of €15.0 million (Sh1.8 billion at the time) worth of debt service following a WFP-brokered debt-for-food security swap arrangement with Germany. Proceeds from the swap were ring-fenced for provision of nutritional needs for 136,000 low-income households.
“My team is still looking into it because we must clearly compute and analyse the data to see how effective and beneficial it will be to the country. A swap gives debt relief but also introduces conditions that the money that is saved goes to specific areas. So, the entire Public Debt Management Office is looking into this and will give me advise for proper action,” Mr Mbadi said.
Whereas the National Treasury remains tight-lipped about the bilateral creditors with whom it could be considering a debt-for-food security swap, Kenya’s top debt service obligations to bilateral creditors in 2024/25 include Italy at Sh15.9 billion, France (Sh13.34 billion), Austria (Sh2.27 billion) and Spain at Sh1.9 billion.
Debt swaps are among the measures the Kenya government is considering as it seeks to ease the pressure of debt service obligations on the Exchequer.
“The government will also explore emerging funding instruments such as debt swaps, diaspora bonds, sustainability linked bonds, Social and Governance Debt instruments to fund the budget deficit and manage public debt,” the 2025 Medium-term Debt Strategy states.
Besides debt swaps for food security, Kenya has also been considering debt-for-nature or climate swaps to unlock funds for the construction of water dams amid a cash crunch that risks derailing spending on key development projects.
Debt-for-nature or climate swaps are financial deals that allow a country to restructure its debt at a lower interest rate or longer maturity, with the proceeds being allocated to conservation or green projects.
The debt-for-nature swaps have become popular following successful deployment in countries such as Seychelles, Belize, and Barbados —relieving the countries of some of the pressure of paying back international loans through nature conservation agreements.
In recently published Public Finance Management (Wildlife Conservation Trust Fund) Regulations, 2023, Kenya targets to tap funds from debt-for-nature transactions to build a Wildlife Conservation Trust Fund.
The fund would also be nourished through levies for payment of environmental services by beneficiaries, payment for environmental services and biodiversity offset schemes, income from investments, grants, donations, bequests, and gifts.
