Much ado about China debt

There has been clear concern over the sustainability of Kenya’s fiscal path in the past five years. Total debt has risen from Sh1.7 trillion in 2013 to about Sh4 trillion in 2017. The good news is that there are indications of a plan for fiscal consolidation, although these will only be confirmed in due time.

Embedded in the concerns is a narrative that raises red flags on Chinese debt. If you look at the accrual of public debt owed China, this stood at Sh63 billion in 2013 and rose to Sh479 billion in 2017; it owns about 66 per cent of Kenya’s bilateral debt. This has led to alarm about Kenya’s ‘over-exposure’.

Indeed, there is an emerging commentary that China is saddling Africa with unsustainable debt and seeks to use indebtedness to further its geopolitical control over the continent.

While I agree that there should be concern with debt levels, I think the ‘danger’ of Chinese debt has dubious motives. In fact it is fair to ask if all the hue and cry would be as pronounced if the debt belonged to another part of the world.

The focus on Kenya’s and indeed Africa’s rising debt needs to be approached in an intellectually honest manner that demonstrates, firstly, that the appetite for debt is coming from Kenya. China is not saddling us with debt, the government wants the debt. Kenya has prioritised infrastructure and gone through expansionary fiscal policy to finance this priority. Thus, it is hard to conceive that given the financing demands of infrastructure development, the government would turn down credit lines that can finance this priority.

Secondly, if you look at the portfolio of the Chinese debt, it is focused on infrastructure indicating the government feels it has found a partner willing to invest in its focus on building railways, roads, electricity transmission lines, dams etc. Bear in mind that China is still a developing country with a 2017 GDP per capita of $8,643 and ranked 75th in the world. However, the Chinese view is that despite this, it will continue to provide sizable development loans to Kenya, some of them concessional or preferential credit lines with a two per cent interest and 20-year maturity.

The point is, once you find a partner that seems to understand where you are coming from and supports your vision, it is likely that the partnership will grow. Further, if other parts of the world are not offering similar debt packages in terms of scale and conditions, they should keep their peace. So why do some seem surprised by burgeoning Chinese credit lines?

Finally, beyond debt sustainability, the core problem with rising debt is less related to the lender but more about how it is spent. The first problem is the question of the management of public finances. If debt does not end up in projects that drive growth but in private pockets, the country is in serious problems. Debt only makes sense when economically productive and thus mismanagement of public monies compomises the ability of debt to inform economic development.

Then absorption. Government at both national and county level has clear problems with development financing. So securing all this debt and failing to ensure it is correctly used and that the funding is absorbed in intended projects is the real problem.

It is important Kenya has a sober conversation about debt, because no matter where it comes from, if mismanaged we will be in hot water regardless.

Ms Were is a development economist. [email protected]