China fines Kenya KSh 1.3 billion for defaulting on SGR loan
Kenya has not repaid Chinese loans given to build the Standard Gauge Railway (SGR), underscoring the country’s struggles with mounting public debt.
Chinese banks fined 1.312 billion Kenyan shillings in the year ending June for defaulting on payments, according to Treasury documents seen by Business daily.
Kenya has raised more than half a trillion shillings from Chinese lenders, led by the Export-Import Bank of China, to finance the construction of the Mombasa SGR in Naivasha.
Taxpayers have been forced to shoulder the burden of SGR loans because revenues generated from passenger and freight services on the track are not enough to cover operating costs, which amounted to 18.5 billion KSh for the year to June against sales of KSh 15 billion. .
“This (KSh 1.312 billion) relates to the cost of default on interest at one per cent of the amount due,” the briefing documents viewed by Business Daily said.
SGR recorded an operating loss of 3.4 billion Kenyan shillings and wired 22.7 billion Kenyan shillings in loan repayments in the year to June.
The default came a year after Kenya requested an extension of the moratorium on debt repayments to bilateral lenders, including China, for another six months until December 2021, saving it from committing billions to lenders. from Beijing.
But lenders, particularly the Exim Bank of China, have resisted Kenya’s request for a debt repayment holiday at an impasse that has delayed disbursements to Chinese loan-funded projects.
China postponed repayments in January last year, helping Kenya temporarily keep 27 billion shillings that were due for six months ending June 2021. Opposition from Chinese lenders forced Nairobi to abandon efforts to extend the debt repayment holiday to avoid straining relations with Kenya’s biggest. bilateral creditor.
China, which accounted for about a third of Kenya’s external debt servicing costs in 2021-22, is the country’s largest foreign creditor after the World Bank. Kenya spent a total of KSh117.7 billion on Chinese debt during the period, including about KSh24.7 billion in interest payments and almost KSh93 billion in repayments, budget documents show. .
Repayment of the SGR loan began in January 2020 after the expiry of a five-year grace period that Beijing had granted Kenya.
The default underscores Kenya’s financial distress over fast-maturing debts that have deeply eaten up tax revenues and reduced funds for development projects.
The administration of former President Uhuru Kenyatta took out loans largely from China starting in 2014 to build roads, bridges, power stations and the SGR.
It started after Kenya became a lower-middle-income economy, excluding it from highly concessional loans from development lenders such as the World Bank.
China’s influence on the country’s infrastructure development, however, began in earnest with the construction of the Thika Expressway between January 2009 and November 2012 at a cost of nearly 32 billion shillings during the president’s last term. Mwai Kibaki.
The financing agreement for the first phase of the SGR, Kenya’s largest infrastructure project in terms of cost since independence, saw China overtake Japan as Kenya’s largest bilateral lender.
Kenya’s debt more than quadrupled to 8.580 billion shillings under the Kenyatta administration.
According to the International Monetary Fund (IMF), the surge in liabilities has exposed the country to a high risk of debt distress.
The cost of servicing public debt is set to soar by a third to a record 1.39 trillion shillings in the fiscal year to June 2023, more than half of projected revenue from the state.
Kenya spent nearly 57% of its tax revenue in the past financial year on loan repayments, according to the Treasury, highlighting the effects of rising public debt on state finances.
The terms of China’s loan agreements with developing countries are unusually secretive and require borrowers to prioritize repayment to Chinese state-owned banks over other creditors. A cache of these contracts was revealed in an earlier Reuters report.
The dataset – compiled over three years by AidData, a US research lab at the College of William & Mary – includes 100 Chinese loan deals with 24 low- and middle-income countries, a number of which are struggling with debt. growing amid economic fallout. of the Covid-19 pandemic.
He revealed several unusual features, including confidentiality clauses that prevent borrowers from revealing the terms of loans, informal collateral agreements that benefit Chinese lenders over other creditors, and promises to keep debt out of debt. collective restructuring – described by the authors as “no Paris”. club clauses”.
The Paris Club is a group of officials from major creditor countries whose role is to find solutions to the payment difficulties of debtor countries.
Last month, President William Ruto reversed one of the most controversial policies of the previous administration which made it compulsory to clear goods through inland container depots in Nairobi and Naivasha.