National Treasury building in Nairobi. The government earlier said external debts come with cheaper terms. PHOTO | FILE
What you need to know:
Kenya will have paid Sh4.6 billion as interest and Sh2.34 billion as principal to the Chinese government and firms in the current financial year, and debt burden will grow to Sh16.1 billion in 2018.
Kenya’s growing appetite for Chinese loans will see taxpayers cough up Sh7 billion as repayment in the year ending June, highlighting the burden of debt borrowed for mega projects.
Treasury documents show that Kenya will have paid Sh4.6 billion as interest and Sh2.34 billion as principal to the Chinese government and firms in the current financial year, and debt burden will grow to Sh16.1 billion in 2018.
In six months to December, Kenya’s loan repayment to China stood at Sh4.1 billion—accounting for a third of Sh13 billion paid to bilateral donors in the period.
This came amid a warning from the World Bank that Kenya’s growing uptake of Chinese loans risks hurting the economy on huge debt repayment burden.
China has in recent years emerged as Kenya’s foreign lender, raising concerns over sustainability of the piling stock of debt.
The World Bank says China’s loans to Kenya have been growing by 54 per cent a year between 2010 and 2014 with some of the credit having high interest rates.
In contrast, Kenya’s loans from its traditional foreign markets of Japan and France stagnated or declined.
Kenya’s loan repayment to France will be Sh6.8 billion in 2018 while that of Japan at Sh5.4 billion, dwarfing the Sh16.1 billion Kenya will pay Beijing.
The main borrowing is linked to the standard gauge railway (SGR) where Kenya is using Chinese loan to build a new Mombasa and Nairobi line at a cost of Sh447 billion including financing costs.
“Kenya still has a heavy debt burden and China’s loans can bring debt to unsustainable levels. Some of China’s loans are non-concessional, which can raise debt-to-gross domestic product (GDP) levels quickly,” World Bank lead economist for Kenya Apurva Sanghi and his counterpart Dylan Johnson said.
They added that Kenya’s debt to China stood at Sh272 billion ($2.7 billion) in December, up from Sh82.9 billion ($821 million) in June 2014 and Sh14.7 billion ($146 million) in 2010.
The Treasury has in the past said growing preference for external debt is due to cheaper or concessional terms with a grace period beyond six years.
Kenya’s domestic debt market has no grace period, while the cost has remained high due to high interest rates.
The Treasury has in the past said growing preference for external debt is due to cheaper or concessional terms with a grace period beyond six years.
Kenya’s domestic debt market has no grace period, while the cost has remained high due to high interest rates.
The World Bank said China issued a credit line of Sh20.6 billion to Kenya for development expenditure in the last fiscal year ended June 2015, another Sh12 billion to the Ministry of Energy for geothermal energy activity.
The Ministry of ICT got Sh2.5 billion and Ministry of Transport Sh5.6 billion.
But as the mountain of debt from Beijing grows, that from Japan has dropped by 2.9 per cent in every quarter of the review period while France’s has shrunk by 0.5 per cent.
“Traditional donors must coordinate efforts with China to avoid undermining governance and debt sustainability programmes,” the World Bank economists said.
The multilateral lender recently cautioned Kenyan officials against increased use of foreign loans for major infrastructure projects to make up for decades of underinvestment that stunted economic growth.
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