No let-up in Kenya’s appetite for Chinese loans as Treasury eyes a new deal for railway

National Treasury cabinet secretary Henry Rotich is expected to fly to China in the coming weeks to negotiate a new loan even as December 2016 official data showed that Beijing’s debt to Kenya hit over Sh400 billion ($4.089 billion).

Mr Rotich intends to get money to build the Naivasha-Kisumu-Malaba standard gauge railway.

The Sh400 billion total debt from the Asian giant amounts to nearly six per cent of the gross domestic product (GDP), making the country the single largest creditor to Kenya.

The ongoing 495-kilometre Mombasa-Nairobi standard gauge rail line, set to open on June 1, is being financed through a Sh200 billion ($2 billion) commercial loan from the Chinese government and a further Sh165 billion ($1.6 billion) in a semi-concessional loan from Beijing.

The Kenyan and Ugandan governments last month agreed to jointly pursue implementation of the Nairobi-Malaba-Kampala SGR project and have it completed within 42 months.

The 273km Kampala-Malaba route estimated to cost Sh230 billion is set for commissioning mid this year, with the contract already awarded to China Harbour Engineering Company.

President Uhuru Kenyatta’s appetite for dragon loans to fund infrastructure projects has seen China’s loans to Kenya more than quadruple under his reign.

Beijing now accounts for 10.7 per cent of Nairobi’s total debt, to take pole position as Kenya’s top external lender ahead of Japan and the World Bank’s International Development Association (IDA).

China now accounts for an estimated 23 cents out of every shilling paid out in external debt service in the half year to December.

Data from the National Treasury shows that Nairobi wired to Beijing a total of Sh12.72 billion in debt servicing out of the total Sh56.37 billion external debt repayment in the six months to December 2016.

This comprised Sh2.17 billion in principal and Sh10.56 billion in interest payments to China. The second largest debt service payout between July and December was Sh12.1 billion to IDA, followed by Japan (Sh4.43 billion), France (Sh4.23 billion), and Sh1.1 billion to the European Investment Bank.

Analysts reckon that Nairobi’s love for Beijing debt is due to the fact that they are deemed to have no “strings attached” unlike Western donors who lay down tough conditions such as good governance, accountability and sustainability before issuing loans.

Japan, which ranks second, has advanced Kenya loans worth $841.59 million as at December 2016, according to official data.

Kenya’s total public debt stood at Sh3.827 trillion as at December 2016 according to data from the National Treasury. This is equivalent to 51.50 per cent of Kenya’s GDP, a rise from 47.97 per cent of GDP in September 2016.

“The overall increase is attributed to increased external debt due to exchange rate fluctuations, disbursements from external loans, and more uptake of domestic debt during the period,” said the Treasury.

The Chinese embassy in Nairobi was yet to reply to our queries by the time of going to press.

Kenya is back in the debt market seeking Sh77 billion ($750 million) through a syndicated loan to help fund infrastructure projects and support the shilling, Reuters reported last week.

Slightly more than half or 50.5 per cent of Kenya’s borrowings as at December 2016 is domestic debt with the remaining being external debt, Treasury data shows.

The stock of gross domestic debt— T-bills, t-bonds and infrastructure bonds — stood at Sh1.93 trillion in the period under review.

Foreign-denominated debt — owed to bilateral and multilateral lenders, commercial banks, and suppliers — stands at $18.50 billion in the period under review. This includes the Eurobond.

Kenya in June 2014 floated a $2 billion sovereign bond on the Irish bourse and later in December that year went back to the market for an additional $750 million in what is technically known as a tap sale.