Principal and interest will surge to Sh93.9b in the next financial year.
After patiently sinking billions on Kenyan soil by financing mega infrastructure projects, China will startreaping the benefits of its investment in massive debt repayments starting in the next financial year.
Budget estimates tabled in Parliament show that Nairobi will give Beijing a staggering Sh93.9 billion in interest and principal payments by end of June 2020, more than twice what Kenya will pay China in the financial year ending June this year.
The amount will include part of the Standard Gauge Railway loan, which Treasury says will mature in January 2020. The loan was split into commercial and concessional tranches.
Between July 2014 and June this year, Kenya’s total debt repayments to China combined will amount to Sh104 billion, just about what the country will be paying Beijing in each financial year starting June 2020 to 2022.
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By June 2020, Sh42.6 billion of the debt serviced will be interest payments, meaning the country will have to dip into its tax revenues.
Already, Treasury has decided to slash allocation for the 47 counties, citing fiscal pressures, with interest payments sucking up funds that would have been used in recurrent spending items such as drugs for public hospitals.
Interest payments have put a strain on the country’sordinary revenues, gobbling up Sh30 for every Sh100 collected. Things have been aggravated by perennial failure by the Kenya Revenue Authority to meet its tax collection target.
After Kenya recalibrated its economy in 2014, graduating into a lower-middle income economy, cheaper loans such as those from the World Bank have been hard to come by.
The country has thus been thrust into a new class of financing known as ‘blend’ where it depends on commercial loans such as those from banks and sovereign bonds as well as semi-concessional loanssuch as those given by China.
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“As official development assistance is limited and as the domestic market faces credit volume, the credit flows from the external private sector has started to increase,” said Treasury in its 2018 Medium Term Debt Management Strategy.
But it is principal payments that will give Treasury a headache. Given that most of the payments falling due are over Sh30 billion ($300 million), it is highly likely that Kenya might request the Chinese government to restructure the loans.
Developing countries are said to have renegotiated about $50 billion (Sh5 trillion) of Chinese loans in the last 10 years, according to a study cited by British publication Financial Times.
The renegotiations have involved term extensions, refinancing and debt forgiveness as China grapples with accusations of putting poor countries into a debt trap.
The research found that there were 14 debt write-offs, deferments in 11 cases and refinancing and debt term changes accounting for most other cases.
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Cameroon and Zimbabwe are some of the countries that have had their debts forgiven by China as the Asian nation moves to improve bilateral relations with African states.
Ethiopia, an economy that has sped past Kenya aided by trillions borrowed from China, recently escaped debt default by a whisker after Beijing accepted to cancel interest-free loans it had advanced to it as at the end of year 2018.
Construction frenzy by the Chinese in Kenya, as in other African countries, is a recent phenomenon which started with former President Mwai Kibaki’s look-East policy.
China’s major infrastructural project during President Kibaki’s term was the Thika Highway, which cost the country Sh25 billion.
Afterwards, the Sino-construction fever would pick up, reaching a climax in 2013 when President Uhuru Kenyatta signed up for a Sh327 billion loan to build the Standard Gauge Railway (SGR), the biggest project in independent Kenya.
In the 2020/21 financial year, debt payments to Chinawill increase to Sh105.6 billion, before peaking to Sh131.6 billion by the time Uhuru exits the scene in the 2022.
So far, Kenya has mostly just been chalking up Chinese debts to power its roads, railways and ports.
Last week, there were reports that China refused to put pen to paper for financing of the second phase of the SGR, amounting to Sh368 billion. State House denied there were such discussions.
“It is very disappointing to read excerpts from the newspapers. The President cannot be said to be returning home empty-handed for something he did not request,” said Chief of Staff Nzioka Waita - even though in the 2019 Budget Policy Statement, Treasury had indicated that negotiations for the financing of the Naivasha-Kisumu section had been completed.
Should China give Kenya Sh54 billion it has committed for the year starting July, its total debt stock will increase to Sh654 billion. The money will be extended to the Transport Department as part of the financing of Phase 2A of the SGR from Nairobi to Naivasha.
So steep will be the growth of debt payments to Chinathat it is expected to push up total external debt payment to an all-time high of Sh392.5 billion.
The financing of the SGR saw China’s debt level surge from Sh252 billion in 2015 to Sh465 billion in 2016, with Beijing taking the pole position as Kenya’s leading bilateral lender.
China’s s debt to Kenya has increased more than seven times from Sh63 billion in 2013, overtaking Japan as the country’s leading bilateral lender.