Appetite for Chinese loans risks choking Kenyan economy
Construction of the Standard Gauge Railway at Kathekani on March 17, 2016. A dispute over land that has led to the suspension of the construction of the Sh327 billion standard gauge railway is likely to cause further delay. PHOTO | SALATON NJAU | NATION MEDIA GROUP
What you need to know:
- Kenyan taxpayers fork out a staggering Sh4 billion as repayment for loans in the six months to December last year.
- Kenya repaid China loans amounting to Sh4.14 billion, comprising a principal amount of Sh3.4 billion and Sh738.22 million in interest.
- In comparison, the country repaid Japan a total of Sh3.4 billion, comprising Sh2.9 billion as the principal amount and Sh387 million in interest.
The growing appetite for Chinese loans saw Kenyan taxpayers fork out a staggering Sh4 billion as repayment for loans in the six months to December last year, official government figures have shown.
This is a third of the total bilateral debt Kenya repaid global nations during the period, amounting to Sh13 billion.
According to the Quarterly Economic and Budgetary Review for the second quarter of 2015, Kenya repaid China loans amounting to Sh4.14 billion, comprising a principal amount of Sh3.4 billion and Sh738.22 million in interest.
In comparison, the country repaid Japan a total of Sh3.4 billion, comprising Sh2.9 billion as the principal amount and Sh387 million in interest.
During the period, France was the third top country Kenya repaid loans to. They amounted to a total of Sh2.3 billion comprising a principal amount of Sh1.7 billion and Sh641 million in interest.
Chinese loans were the highest priced, according to the repayment figures provided by the Treasury.
China has, in recent years, emerged as the leading source of bilateral aid amid murmurs of concern on the cost of its engagement with Kenya.
HUGE REPAYMENT BURDEN
Last month, the World Bank warned that Kenya’s huge appetite for Chinese loans risks choking the economy on the huge repayment burden.
A research paper by World Bank economists says Chinese loans to Kenya have been growing by 54 per cent a year between 2010 and 2014, with some of the credit having high interest rates.
In contrast, the paper said, Kenya’s loans from its traditional foreign markets of Japan and France stagnated or declined. The main borrowing pertains to the standard gauge railway funding.
“Kenya still has a heavy debt burden and China’s loans can bring debt to unsustainable levels. Some of China’s loans are non-concessional, which can raise debt-to-gross domestic product levels quickly,” said World Bank lead economist for Kenya, Mr Apurva Sanghi and his counterpart, Mr Dylan Johnson.
They added that Kenya’s debt to China stood at Sh262 billion ($2.6 billion) in June last year, up from Sh82.9 billion ($821 million) a year earlier and Sh14.7 billion ($146 million) in 2010.
The Treasury has in the past said growing preference for external debt is due to cheaper or concessional terms with a grace period beyond six years.
