China awarded Kenya Sh294.3 billion or 90 per cent of the Sh327 billion spent on constructing Mombasa-Nairobi SGR line.
Chinese vice Foreign minister Zhang Ming says the size of the loans should not be an issue “since the money is being put in a project that will benefit Kenyans”.
China has downplayed concerns on Kenya’s ballooning standard gauge railway (SGR) loans whose next phase is expected soon.
China awarded Kenya Sh294.3 billion or 90 per cent of the Sh327 billion spent on constructing Mombasa-Nairobi SGR line.
It is also financing 90 per cent of the Sh150 billion Nairobi-Naivasha section and has since been approached for an additional Sh370 billion for the Naivasha-Kisumu line.
Overall loans extended by the China Exim Bank have concessional and commercial portions.
Apart from the SGR loans, China is already the single-largest bilateral lender owed $3.5 billion (Sh361.6 billion), or 19.4 per cent of total external debt by end of the second quarter of the 2016/17 fiscal year.
Chinese vice Foreign minister Zhang Ming said the size of the loans should not be an issue “since the money is being put in a project that will benefit Kenyans”.
“When a debt is put in the right project, it is not a burden,” said he said in a statement last week.
“The investment will give the money back since SGR is the largest infrastructural project in Kenya and it will lead to economic growth of the whole region which means that the debt will be paid.”
Official data shows the portion of Kenya’s yuan-denominated (non-dollar) external debt nearly doubled between September and December 2016 to stand at 6.6 per cent of external debt.
The increase was mainly due to a Sh20.7 billion ($200 million) semi-concessional loan disbursement from Beijing. The public debt hit Sh4 trillion at the end of March 2017, 51.9 per cent of it owed to foreign entities.
Mr Ming maintained the multiplier effect of the SGR project would be enormous, including job opportunities and overall growth of other sectors of the economy.
“SGR is one of the major milestones this country has celebrated since independence,” said Mr Ming.
“It is evident that the China-Kenya friendship has given Kenya another reason to celebrate and this reiterates the long friendship that these two great nations have achieved.”
In its latest quarterly economic updates, the Central Bank of Kenya says Kenya faces a low risk of external debt distress “as all the liquidity and solvency debt burden indicators were below the Country Policy and Institutional Assessment-based thresholds.”
“However, there is a temporary breach of debt-service-to-exports ratio under standardised stress tests. Public DSA (debt sustainability analysis) sensitivity analysis shows that if the primary deficit were to remain at the current levels, public debt would take an upward trajectory to way above the EAC convergence criterion.”
According to the CBK, the ongoing fiscal consolidation will however mitigate the risk of breaching EAC red lines in the medium term.
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