Kenya will from January 21 start repaying the Sh162 billion Chinese loan used to build the Nairobi-Naivasha standard gauge railway (SGR) line, adding to the taxpayers’ burden of settling the mounting foreign debt.
The Treasury has disclosed that the $1.482 billion (Sh162 billion) debt from the Exim Bank of China that Kenya tapped in December 2015 has fallen due after a five-year grace period and that Kenya will be expected to make 30 semi-annual payments for the next 14 years.
"Kenya Nairobi-Naivasha Standard Gauge Railway Project -2015023. Loan of $1.482 billion to be repaid in 30 instalments from January 21, 2021 to July 21, 2035," the Treasury said.
The railway line linking Nairobi to Naivasha was opened on October 16, 2019 to help provide a seamless rail transit from Mombasa to the Ugandan border town of Malaba.
The maturity of the second SGR loan is expected to add to the growing load on Kenyan taxpayers given that the country is already paying billions of shillings in Chinese debt for the Mombasa to Nairobi track—which was opened in 2017.
Loan repayments to China’s Exim Bank will jump from the Sh31 billion paid in the year to June 2019 to Sh71.4 billion in the current fiscal period, reflecting a 130 percent increase, and Sh111.47 billion next year.
Taxpayers have been forced to shoulder the burden of the SGR loans because revenues generated from the passenger and cargo services on the track are not enough to meet the operation costs.
The railway loan maturity comes at a time when Kenya is struggling with an increasing budget shortfall due to falling revenues as a result of the coronavirus pandemic and spiralling debt which has hit Sh7 trillion or 69.2 per cent of the economy
Revenue collection underperformed by Sh100 billion in the first five months of the financial year to July amid the coronavirus-related disruptions.
Kenya’s economy shrank by 5.7 percent in the second three months of 2020, its first quarterly contraction since the global financial crisis 12 years ago, as the Covid-19 pandemic shut businesses and kept people at home.
The Treasury expected a growth of 0.6 percent last year compared to 5.4 percent in 2019.
The Exim Bank of China loan for the Naivasha line, which was signed in December 2015, came with a grace period of five years.
The Chinese bank financed 85 percent of the project while Kenya agreed to provide the balance of Sh22.5 billion.
The debt register revealed that Kenya is paying three percent above London Inter-Bank Offered Rate (Libor), which serves as an international lending benchmark, that currently stands at 0.34 percent, down from 2.3 percent in December 2019.
This means that the loan comes with an interest rate of 3.34 percent, which is slightly higher compared to concessional loans issued by multilateral lenders like the World Bank.
The recent loans Kenya has tapped from the World Bank and IMF come with annual interest of less than two percent.
This is the second SGR loan to mature after a $2 billion (Sh218.6 billion) debt for the Mombasa-Nairobi line became fully due in January last year and will be serviced till 2029. A second tranche of the Mombasa Nairobi line worth $1.6 billion (Sh174 billion) will also become payable in July this year until January 2034.
President Uhuru Kenyatta’s administration has largely taken loans from China since 2014 to build much-needed roads, bridges, power plants and the SGR.
This started after Kenya became a lower-middle income economy, locking her out of highly concessional loans from development lenders such as the World Bank.
China’s influence on the country’s infrastructure development, however, started in earnest with the construction of the Thika Superhighway between January 2009 and November 2012 at a cost of nearly Sh32 billion during the last term of President Mwai Kibaki.
The deal to fund the first phase of the SGR, Kenya’s single-largest infrastructure project by cost since independence, saw China overtake Japan as Kenya’s largest bilateral lender.
The Jubilee administration looks set to borrow an average of Sh2.5 billion daily before the end of President Kenyatta’s final term in August 2022, highlighting its growing appetite for foreign debt.
Treasury chiefs project in a draft Budget Review and Outlook Paper new loans of Sh1.87 trillion in the two years to June 2022 or Sh2.5 billion daily, pushing Kenya’s debt to Sh8.06 trillion.
If that comes to pass, Mr Kenyatta will have borrowed at least Sh6.1 trillion to implement his manifesto in 10 years in power having inherited slightly more than Sh1.89 trillion in June 2013.
The increased debt has seen Kenya commit more than half of taxes to paying loans, leaving little cash for building roads, affordable housing and revamping of the ailing health sector.