Kenya remits 29 billion shillings to China to ease debt impasse
- Treasury documents reveal that Kenya paid off the billions at a time when Chinese lenders, especially the Exim Bank, had opposed Kenya’s request for debt repayment leave.
- Kenya has asked for a six-month extension of the moratorium on debt repayments from bilateral lenders, including China, until December 2021, saving it from committing billions to Beijing lenders.
Kenya wired 29.86 billion shillings to China in the quarter through September 2021 to ease the deadlock on debt repayments that delayed disbursements for projects funded by Chinese loans.
Treasury documents reveal that Kenya paid off the billions at a time when Chinese lenders, especially the Exim Bank, had opposed Kenya’s request for debt repayment leave.
Kenya has asked for a six-month extension of the moratorium on debt repayments from bilateral lenders, including China, until December 2021, saving it from committing billions to Beijing lenders.
The moratorium began in January 2021.
China postponed repayments into January, helping Kenya temporarily hold 27 billion shillings owed for six months ending June 30.
Opposition from Chinese lenders forced Nairobi to drop its request for an extension of the debt repayment holiday to avoid straining relations with Kenya’s largest bilateral creditor.
China, which accounts for about a third of Kenya’s external debt service costs for 2021-2022, is the country’s largest foreign creditor after the World Bank.
Kenya plans to spend a total of 117.7 billion shillings on Chinese debt during the period, including about 24.7 billion shillings in interest payments and nearly 93 billion shillings in repayments, according to the documents. budgetary.
G20 countries, including Belgium, Canada, Denmark, France, Germany, Italy, Japan, Republic of Korea, Spain and the United States, rescheduled payments of 32, 9 billion shillings in principal and interest due between January and June over the next four years with a one-year grace period.
Kenya has called for an extension of debt relief for G20 countries until December, envisaging additional savings of 39 billion shillings.
Haron Sirima, director general of the National Treasury’s Public Debt Management Office, said the response to Kenya’s demand for G20 relief had been “positive”.
The Treasury report shows that repayments to other major bilateral creditors remained low, signaling a temporary freeze.
For example, Kenya reimbursed France 6.61 million Sh during the period July-September against 2.25 billion Sh a year ago and 0.72 million Sh in Japan against 454.16 million of Sh previously.
Kenya has faced a deteriorating cash flow situation marked by declining income, worsening debt service obligations and the effects of the Covid-19 pandemic.
He spent 99.73 billion shillings less than the cash he initially budgeted for external debt service for the fiscal year ended June 2021, in part thanks to the six-month debt relief.
While China is a member of the G20 and a signatory to the agreement, much of its lending to Kenya has been made on a commercial basis by government agencies, quasi-public corporations and by state-owned banks such as the China Development Bank and Exim Bank. from China.
China has sought to negotiate its debt relief deals separately but on the same terms as the G20 countries while reserving the right to the size and loans that will attract the moratorium.
President Uhuru Kenyatta’s administration has borrowed heavily from China since 2014 to build roads, bridges, power plants, and the Standard Gauge Railway (SGR).
It started after Kenya became a lower middle income economy, preventing it from benefiting from highly concessional loans from development lenders such as the World Bank.
The terms of China’s loan agreements with developing countries are unusually secretive and require borrowers to prioritize repayment to Chinese state-owned banks before other creditors. A cache of such contracts was revealed in a previous Reuters report.
The dataset – compiled over three years by AidData, a U.S. research lab at the College of William & Mary – includes 100 Chinese loan contracts with 24 low- and middle-income countries, a number of which are struggling with debt growing amid the economic fallout from the Covid-19 pandemic.
He uncovered several unusual features, including confidentiality covenants that prevent borrowers from revealing loan terms, informal collateral agreements that benefit Chinese lenders over other creditors, and promises to keep debt out of debt. collective restructuring – nicknamed by the authors as “no Paris“ club ”clauses.
The Paris Club is a group of officials from the main creditor countries whose role is to find solutions to the payment difficulties of debtor countries.