Kenya spent Sh152.69 billion to repay debt due to China in the just-ended financial year, underlining the burden on taxpayers in servicing loans taken to build a modern railway and other infrastructure projects in the past.
The cash wired to Beijing comprised nearly Sh100.47 billion in principal sums which fell due and Sh52.22 billion in interests, according to disclosures by the Treasury.
The total amount paid represents a 42.14 percent jump over Sh107.42 billion in the previous year ended June 2023.
The data shows Nairobi ended up paying Sh40.76 billion more than it had budgeted at the beginning of the fiscal year, driven by movements in benchmark interest rates and conversion rates for the Kenya shilling.
The terms of Beijing’s loan deals with developing countries are usually secretive and require borrowing nations such as Kenya to prioritise repayment to Chinese state-owned banks ahead of other creditors, according to a dataset compiled by AidData — a US research lab at the College of William & Mary.
The dataset, based on an analysis of loan agreements between 2000 and 2019, suggested the Chinese deals have clauses for “more elaborate repayment safeguards” than its “peers in the official credit market”.
“China tends to give loans to African countries with few or no conditionalities and usually does not want to interfere in the domestic affairs of countries it engages with. This has led to critics of China accusing Beijing of engaging in debt diplomacy, whereby African countries are saddled with enormous debt Beijing knows they cannot possibly pay,” David Monda, a Kenyan international relations scholar who teaches political science at the City University of New York, said via email.
“China then extracts concessions from these indebted countries through pressure to sell off national assets or barter natural resources for debt forgiveness. Zambia is a case in point, with its default of Chinese loans and its effort to seek relief from the West.”
An official at the Treasury’s Public Debt Management Office attributed the 36.42 percent climb in repayments to China from the original estimates of Sh111.93 billion to “depreciation of the shilling and revised interest based on floating rate”.
The data shows actual repayments towards interest more than doubled from the initially budgeted amount, rising 127.55 percent to Sh52.22 billion from Sh22.95 billion.
The redemptions due to China, on the other hand, went up 12.91 percent to Sh100.47 billion from Sh88.98 billion which had been projected at the beginning of the year.
The payments were largely wired to the State-owned Exim Bank of China after Kenya fully repaid debts owed to China Development Bank in the fiscal year ended June 2023.
The Exim Bank of China financed about 90 percent of Sh566.12 billion Kenya spent on building the nearly 700 kilometres of the Standard Gauge Railway (SGR) from the port city of Mombasa to Suswa near Naivasha — nearly 100km northwest of the capital, Nairobi.
The SGR funding was in addition to Kenya's other loans to construct some of its roads and other infrastructural projects.
The SGR loans are denominated in US dollars and have two floating interest rates, set at either 3.6 or three percent above the London Interbank Offered Rate (Libor) average.
The average 12-month US dollar Libor stood at a record of 5.85 percent in June 2023 — when it was last published — marking its end as a global benchmark, a sharp climb from 0.2 percent lows seen in November 2019.
Kenya usually repays China for its loans in July and January of each year. As at March 2024, Kenya’s debt to China stood at $5.67 billion (about Sh737.66 billion under the prevailing conversion rate of Sh130 per dollar).
The increased debt payments to China have come when the United States has flagged Kenya’s elevated debt servicing costs for limiting President William Ruto administration’s fiscal space to adequately fund development projects in education, healthcare, and housing.
“Kenya’s ability to adequately fund its social services and poverty reduction programmes is increasingly constrained by the cost of servicing its debt, partly due to the continued weakening of the local currency,” Office of the United States Trade Representative, the equivalent of Trade ministry, said in a report late last month.
“As a result, Kenya continues to allocate more money for debt repayment than it does for development expenditures.”
Kenya under the administration of former President Uhuru Kenyatta largely took loans from China to build roads, bridges, power plants, and the SGR in a bid to spur economic activities and create jobs for growing skilled youth.
That borrowing binge started around 2014 after Kenya became a lower-middle income economy, limiting her access to highly concessional loans from development lenders such as the World Bank Group.
The Exim Bank of China extended a grace period of five years which ended in 2019, obligating Kenya to start servicing the principal amount in addition to interest sums.
