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September 25, 2018

US senate speaks out on China’s ‘debt trap’

U.S. President Donald Trump walks with Kenyan President Uhuru Kenyatta at the White House in Washington, U.S., August 27, 2018. REUTERS
U.S. President Donald Trump walks with Kenyan President Uhuru Kenyatta at the White House in Washington, U.S., August 27, 2018. REUTERS

Government’s huge borrowing from China may work against the country’s hope to retain IMF’s Sh150 billion precautionary facility that expires on Friday.

US Senate raised concern about high infrastructure debt issued to developing countries by China under the Belt and Road Initiative. It termed Chinese funding as ‘predatory’.

Kenya is among 23 countries at risk of debt distress following heavy lending from China under BRI as stated by World Bank in a study by Centre for Global Development (CGD) released in March this year.

A letter dated August 3, posted on Georgia senator David Perdue’s website, a month before President Uhuru Kenyatta’s visit to White House, the US Senate raises concern about China’s debt trap diplomacy and negative effects of BRI to developing countries which latter turn to IMF for bailouts.

“We write to express our concern over bailout requests to the International Monetary Fund by countries who have accepted predatory Chinese infrastructure financing. The financial crisis illustrates dangers of China’s debt trap diplomacy to countries and security threats to US,’’ the letter said in part.

According to the letter, 68 countries currently hosting BRI funded projects, 23 of them are at risk of debt distress while future BRI related financing in eight of those countries raises concerns about sovereign debt sustainability.

The US Senate led by David Perdue and Patrick Leahy wanted to know the government’s plan to raise dangers of Chinese infrastructure financing with IMF, considering that US contributes hugely to the $1 trillion (Sh100 trillion) kitty managed by the Washington based financier.

It also sought to know how US can use its influence to ensure IMF’s bailout terms prevent continuation of ongoing BRI projects and how it can educate those countries about risks of Chinese loans.

The Wall Street Journal, Washington Post and Washington Times have quoted the letter pressing Donald Trump’s administration to detail how it will deal with Beijing’s financing of international infrastructure projects that have left many countries indebted and potentially in need of bailouts.

US Embassy in Nairobi could not confirm authenticity of the letter, saying it will check with the Department of State in US.

“We are unable to verify the authenticity of the letter and we are not able to comment on intra-governmental communications. It would take us some time to check with the Department of State to see if Secretary Pompeo received such a letter and we would be unable to speak for Secretary of the Treasury Steven Mnuchin,’’ the Nairobi office said.

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