Kenya spends record Sh72 billion on Chinese debt in first quarter

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Kenya spends record Sh72 billion on Chinese debt in first quarter


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China provided loans to Kenya to build a standard gauge railway. FILE PHOTO | NMG

Interest paid by Kenya on outstanding Chinese loans more than doubled in three months to September, according to official data, taking repayments to a record high of 72.07 billion shillings during the period under review.

Latest Treasury spending revelations show interest repayments transferred to Beijing, mainly through the Exim Bank of China, jumped to nearly Sh24.46 billion in the first quarter of the financial year in progress, compared to 11.85 billion shillings a year ago.

The 106.41 percent rise in interest costs was due to a rise in the variable rate of Chinese loans amid a weakening of the shilling against the US dollar.

This increased Kenya’s bilateral debt repayments to China-funded infrastructure projects by almost half (48.50%), from Sh48.53 billion in the first quarter of the last financial year ended June. 2023.

The bulk of the loans are to the Exim Bank of China, after Kenya repaid its debts to the China Development Bank in the previous financial year.

The Exim Bank of China financed about 90 percent of the Sh566.12 billion spent by Kenya on the construction of a nearly 700-kilometer standard gauge railway linking the port city of Mombasa to Suswa, near Naivasha, almost 100 km northwest of Nairobi.

The SGR funding was in addition to other loans Kenya had taken out to build some of its roads and other infrastructure. SGR loans are denominated in US dollars and carry two variable interest rates, set at either 3.6 or three percent above the average London Interbank Offered Rate (Libor).

The average 12-month US dollar Libor stood at a record high of 5.85% in June 2023 – when it was last reported – marking its end as a global benchmark, a sharp rise from the low of 0 .2% from November 2019.

Rising base interest rates this fiscal year prompted the Treasury to increase the full-year debt costs to Exim Bank of China to Sh152.39 billion in the supplementary budget , compared to Sh112.39 billion approved by lawmakers last June.

“(The increase in repayments to Exim Bank of China is due to) the depreciation of the exchange rate and the revision of the floating rate interest rate,” said Haron Sirima, director general of the Bank of China Management Bureau. public debt to the Treasury, told Business Daily earlier today. the month.

“Note that China is the largest bilateral creditor. Most Exim bank loans are fully repaid this fiscal year (fiscal year ending June 2024).

The Treasury typically services its debts to China in two tranches, in July and January, under secret loan agreements between Nairobi and Beijing.

Reimbursements to China constituted the second largest expenditure in the quarter under review, only eclipsed by the Teachers Service Commission which received Sh80.68 billion from the government’s main account.

Kenya, under the administration of former President Uhuru Kenyatta, borrowed extensively from China to build roads, bridges, power plants and the SGR, in a bid to boost economic activities and create jobs.

This borrowing spree began around 2014, after Kenya became a lower-middle-income economy, limiting its access to highly concessional loans from development lenders such as the World Bank.

The Treasury report, however, shows that China’s total outstanding debt has declined in the post-Covid era, largely due to reduced new borrowing as part of principal arrears repayments.

Kenya owed China $5.94 billion (Sh906 billion) as of September 2023, the smallest debt to Beijing since nearly $5.50 billion (Sh839.50 billion) in September 2018. after peaking in June 2021 at $7.06 billion (Sh1.07 trillion).

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