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February 16, 2019

Kenya's debt to China hits Sh101 billion as external loans pile

Some of the Chinese who are building roads in Othaya at their site at Munyange area in Othaya in this recent photo.Photo/Wambugu Kanyi
Some of the Chinese who are building roads in Othaya at their site at Munyange area in Othaya in this recent photo.Photo/Wambugu Kanyi

China has toppled Japan from being Kenya’s largest bilateral lender, further entangling the country’s economy with the Asian dragon, National Treasury debt data for up to December 31 show.

Kenya owes $1.1 billion (Sh101 billion) to China, nearly a third of which was stacked up over the first half of the government’s current fiscal year. The debt stood at about $0.85 billion (Sh82.8 billion) at the end of last June.

While China’s lending to Kenya has been growing in recent years, Japan has been reducing its credit over the same period.

Kenya’s debts to Japan more than halved over the six months, to $0.4 billion (Sh36.8 billion) as at December 31 from $0.9 billion (Sh92 billion) in June, a 55.6 per cent decline.

The Chinese debt pile is associated with ongoing infrastructure projects in the country, for which China pegs funding to the contracts being awarded to its companies.

In December, for instance, China Exim Bank released its initial tranche of funding for the standard gauge railway, which explains the surge in Chinese debt. The bank will finance the project to the tune of 85 per cent, with the Kenya government bridging the remainder through levies and budgetary allocations.

China Road and Bridge Corporation is building the first phase of the Mombasa-Kampala railway project, which is estimated to cost $4 billion (Sh368 billion).

Chinese Premier Li Keqiang visited Kenya in May last year, during which 17 agreements were signed, having been agreed on during President Uhuru Kenyatta’s tour of China in his early months in office.

Japan is now playing second fiddle to its Asian rival, which is also Kenya’s second largest trade partner and is closing in on India as imports rise.

However, Statehouse downplayed Tokyo’s declining significance as a creditor and in trade during Uhuru’s visit to Japan this month.

“Japan has long been a very close, and very generous, development partner. Over the years we have received in excess of Sh420 billion in development assistance, whether as grant aid, technical assistance or loans,” Statehouse spokesperson Manoah Esipisu said two weeks ago.

“One of the President’s aims on the trip is to strengthen this relationship of mutual aid, and to see how the assistance and loans can be used more effectively and efficiently.”

The National Treasury data show Germany is Kenya's third largest bilateral lender with about $0.45 billion (Sh41.4 billion), followed by Belgium with $0.1 billion (Sh9.2 billion) and the Netherlands.

The country’s total external debt rose to Sh1.17 trillion by end of December, including Sh40 billion to State corporations guaranteed by the national government.

The World Bank’s International Development Association is Kenya’s largest multilateral lender and accounted for $4.2 billion (Sh386.4 billion), about 33 per cent of the entire external debt.

Most of the external debt – 45.1 per cent – is dollar-denominated, according to the Central Bank, an increase from 40 per cent in June.

It cost the taxpayers Sh9.3 billion to service external debt in the first half of the government’s fiscal year, of which Sh6.6 billion was interest payments. This is partly attributed to an increase in the share of external debt owed to commercial banks at 21.8 per cent in December, from 16.8 per cent in June.

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