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China rejected Kenya's request for Sh32.8b debt moratorium

Treasury CS Ukur Yatani. [Wilberforce Okwiri, Standard]

China turned down Kenya’s request for a debt service suspension of Sh32.8 billion that was due between July and December 2021, the National Treasury told the International Monetary Fund (IMF).

This left the country with savings of a trifling $89 million (Sh10.05 billion) from Paris Club members who agreed to Kenya’s request for a debt freeze.

As a result, the Kenyan Shilling weakened dramatically as the country raided its reserve of dollars to repay the loans due to non-Paris Club members including China in the six months to December this year.

China is Kenya’s largest bilateral lender, with an outstanding debt of Sh692 billion or 66.5 per cent of all the bilateral loans, as of the end of September 2021. The National Treasury officials revealed that they had requested all its bilateral creditors for debt service suspension estimated at $379 million (Sh42.8 billion).

“However, this amount is now projected to be lower at around $89 million (Sh10.05 billion) due to non-participation by some creditors,” said Kenyan authorities in a letter to IMF boss.

People's Bank of China headquarters, April 4, 2020. [Reuters]

During the first phase (January to June 2021), Kenya obtained debt suspension of $425 million (Sh45.5 billion), with China reluctantly joining other G-20 members in the debt service suspension initiative (DSSI) that was aimed at giving developing countries ravaged by Covid-19 pandemic some breathing space in their debt repayment obligations.

During this period, China gave Kenya a debt repayment moratorium of Sh30 billion.

However, the China Development Bank, another major Chinese lender, did not participate in the initiative.

China is said to have pushed back against Kenya’s request for the extension of the debt service holiday for another six months to December. Kenya is supposed to have paid China $558.4 million (Sh63.1 billion) between July and December 2021, according to data from the World Bank.

The repayment includes the first phase of the Standard Gauge Railway (SGR) from Mombasa to Nairobi, where Kenya was expected to pay Exim Bank of China about Sh10 billion.

World Bank data, however, shows that the country was to pay China, $325.7 million (Sh36.8 billion) in July alone.

This differs from the data given by Treasury in one of its reports. In the report, the Treasury indicates that it paid Sh29.86 billion to China in three months between July and September.

However, data from the Central Bank of Kenya (CBK), the fiscal agent and banker for the National Treasury, shows that the government’s net foreign assets (NFA) – a reserve of Kenya’s dollar assets at CBK dropped by a massive Sh47.7 billion in August, meaning more dollars left the State coffers in July.

CBK Governor Patrick Njoroge. [David Gichuru, Standard]

“The decline in NFA of CBK was largely due to scheduled debt service and other central bank operations,” said the National Treasury.

The debt repayment marathon in the second half of 2021 impacted negatively on the local currency, with the country’s export and tourism earnings yet to recover fully from the negative effects of the Covid-19 pandemic.

However, the Shilling has been propped up by a steady inflow of diaspora remittances as well as loans from multilateral institutions such as the World Bank and the IMF. The country also successfully issued a Eurobond of $1 billion (Sh113 billion) in June.  

As a result, Kenya was forced to painstakingly service all its external debt obligations that were due in the six months to December 2021, a situation that saw its external position deteriorate with the Shilling trading at a record low of 113 against the US dollar.