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Nairobi: 'No Default!'

FILE: Currency dealer counts Kenya shillings at a money exchange counter, Nairobi. Taken Oct. 23, 2008.

NAIROBI — Kenya will not default on its debt repayment obligations, the president's chief economic adviser said, as the government delayed payment of civil service salaries due to a cash squeeze caused by massive interest payments.

Kenya's debt burden, compounded by a weakening local currency and international market turmoil precipitated by a banking crisis, have caused some market participants to speculate that Kenya could soon default like Zambia and Ghana.

Nairobi has no plans to go down that route, said David Ndii, the president's adviser.

"We are not insolvent. We can finance repayments. It is a significant sacrifice but we are actually able to pay," Ndii told Citizen TV late on Monday.

He said default was a "very bad idea" since it would force the government to "spend the next three to four years in very protracted debt restructuring negotiations."

Annual interest payments on domestic debt alone have surged to 680 billion shillings ($5.09 billion) this year from 180 billion shillings nearly a decade ago when the debt binge started, Ndii said, heaping pressure on the government's cash flow.

"That unfortunately is the lay of the land for quite a while," he said.

The government was failing in one of its most basic obligations by failing to pay its workers, said Opiyo Wandayi, the leader of the opposition in the national assembly.

"Civil servants and MPs have gone to Easter without salaries," he said in a statement issued during the weekend.

He did not respond to a request for comment on Tuesday but another lawmaker told Reuters the salaries were sent to bank accounts on Tuesday morning.