Why multilateral lenders are overtaking China on lending Kenya

Kenya eyes another Ksh.23 billion loan from world Bank

Kenya has slowed down her borrowing habit from China, amidst claims that the world’s second-largest economy has in the recent past taken control of some of the African country’s key infrastructure projects.

And as President Uhuru Kenyatta’s second term nears an end. Treasury records indicate that the Jubilee Administration has reduced its borrowing record from China as opposed to multilateral lenders like the World Bank.

Since the advent of the coronavirus pandemic in March 2020, Kenya has been receiving credit from both the WB and the International Monetary Fund (IMF) in a bid to bolster the ailing economy.

IMF saw its lending to Kenya rise from Ksh.48.7 billion to Ksh.207.5 billion, compared to China’s Ksh.125 billion to make an outstanding debt of Ksh.786 billion.

President Kenyatta’s reign in nine years to 2022 has been anchored on infrastructure development when the Standard Gauge Railway (SGR) set stage and was funded by China.

The deal by Exim Bank of China to fund 90 percent of the Ksh.385 billion under the prevailing exchange rate, 485-kilometre Mombasa-Nairobi SGR line saw Beijing overtake Tokyo as Kenya’s largest bilateral lender.

This followed an agreement signed with Beijing in May 2014 to borrow Ksh.324.01 billion from the state-run bank, comprising Ksh.185.6 billion commercial loan and Ksh.181.1 billion concessional credit to build the first phase of the modern railway.

The cash, which was disbursed in phases, has an interest of 3.6 percentage points above the six-month average of London Inter-Bank Offered Rate (Libor) which serves as an international benchmark.

The loan for the first phase is to be repaid in 15 years with a grace period of five years.

Kenya later tapped Ksh.158.54 billion debt in December 2015 to link the SGR line from Nairobi to Suswa near Naivasha.

The loan for the second phase of the SGR line whose five-year grace period lapsed last December paving way for the onset of payment of principal sums from January 2021 — will be cleared in 30 semi-annual payments in the next 14 years.

Repayments to China’s Exim Bank will account for 24.15 percent of the Sh400.46 billion external debt obligations for the next financial year ending June 2022.

Kenya’s public debt has surpassed Ksh.5.6 trillion making up for 60 percent of Kenya’s gross domestic product, with China being the country’s largest creditor.

Kenya presently owes 72 percent of its bilateral debt and 21 percent of its overall debt to China.

In an attempt to reduce the number of commercial debts, the government sought to seek help from local lenders for the past four years.

The world bank and IMF are now able to have a say on the country’s economic policy planning, where the government is obligated to deploy tough conditions across the many sectors in the country.

Due to the rise in partnership with China, there have been other unexpected results as well. Over recent years, there has been an increase in Chinese companies’ involvement and investment in Kenya.

There are more than 70 large Chinese companies doing business in Kenya, the largest among them being Jiangsu International Economic and Technological Cooperation Co., China Road Bridge Construction Corporation, and China Import and Export Group.

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