The World Bank and the International Monetary Fund (IMF) have stepped up lending to Kenya over the past three years, firming their grip on the country's foreign public debt.
Data from the Treasury show the World Bank’s total lending nearly doubled to Sh1.2 trillion in July from Sh692 billion in July 2019, with the bulk of loans coming in the wake of Covid-19 economic hardships.
The IMF loans grew from Sh43 billion to Sh234 billion while that of the African Development Bank (AfDB) rose from Sh239 billion to Sh388 billion in the same period.
This has seen the share of foreign public debt held by the multilateral lenders increase to 46 percent of the Sh4.299 trillion external debt from 42 percent last year and 32 percent in 2019, reducing the portion of bilateral debt owed to countries like China.
This is a departure from lending trends in the first term of President Uhuru Kenyatta’s reign when Nairobi was a major beneficiary of Chinese loans for the development of mega infrastructure projects such as roads and a modern railway.
The accumulation of Chinese debt has caused anxiety among analysts and activists in recent years as the loans increased to hundreds of billions of shillings in just a few years while its repayment terms are not made public.
The most notable project funded by the Chinese is the standard gauge railway (SGR), whose commercial viability has been the subject of intense scrutiny.
Kenya has in recently gone easy on expensive commercial debt to cut back on ballooning repayments while the Covid-19 pandemic squeezed revenue collection. As part of that strategy, it has secured hundreds of billions of shillings from the IMF and the World Bank, a key plank being direct lending for the budget to top up the public purse for items like paying civil servants salaries.
This has offered the World Bank and IMF influence on Kenya’s economic policy planning that would require the government to implement tough conditions across many sectors, including a freeze in civil servants’ pay and the imposition of new taxes.
Typically, World Bank, AfDB and IMF loans have zero or very low-interest rates and have repayment periods of 25 to 40 years, with a five- or 10-year grace period.
The stock of foreign public debt rose to Sh4.299 billion in July from Sh3.16 billion in the same month of 2019-- a surge that some politicians and economists say is saddling future generations with too much debt.
“The increase in external debt stock was attributed to disbursements and exchange rate depreciation,” said the Treasury in a statement.
In the year to July, the shilling depreciated 9.0 percent, further inflating the share of foreign public debt and exposing the country to costly repayments. According to the Treasury, 68 percent of Kenya’s external debt is denominated in dollars, 18 percent in Euros and 6.0 percent in Japanese yen.
