We are in good standing with our lenders Treasury

National Treasury Cabinet Secretary Ukur Yatani during the listing and bell-ringing ceremony to mark the commencement of trading of KMRC's(Kenya Mortgage Refinance Company) corporate bond at the NSE floor. [Wilberforce Okwiri, Standard]

The government has denied reports that it defaulted on repayment of a loan from China that was used to finance the construction of the Standard Gauge Railway (SGR).

Treasury said it has not missed the loan repayments to the Exim Bank of China and remained in good standing with other lenders.

A report by a local daily on Thursday said Treasury had skipped repayment of the SGR loans and had been penalised Sh1.31 billion by the Chinese bank, citing Treasury documents.

“We wish to state categorically, that Kenya has never defaulted on its settlement of its debt service obligations to any of its creditors, nor has any creditor filed or reported any claim of default on debt service payments on facilities extend to the government of Kenya,” said National Treasury Cabinet Secretary Ukur Yatani in a statement.

“Furthermore, Kenya has not accumulated any debt arrears in decades to suggest difficulty in debt servicing.”

There has been concern about Kenya’s debt sustainability but Treasury has over time tried to allay fears that the country has procured too much debt.

Total public debt stood at Sh8.58 trillion at the end of June this year, according to Central Bank data.

In the statement, the CS sought to allay these fears again, noting that Kenya is regularly rated by independent agencies and none has raised the red flag on its borrowing.

“As a country accessing international financial markets to raise resources, Kenya undergoes frequent independent sovereign rating reviews whose outcomes are published widely.

"At no time has Kenya been flagged as a country defaulting on its external debt obligations,” Mr Yatani said.

“It is also important to note that all public debt, including the SGR loans, are paid from the Consolidated Fund in accordance with the Public Finance Management Act, 2012. Debt service is a first charge on Consolidated Find and takes precedence over other firms of expenditure.”

“We want to assure our creditors, development partners, investors and the general public that Kenya’s financial position is sound and robust.”

The SGR is one of the many infrastructural projects that President Uhuru Kenyatta’s administration constructed using debt.

Though it has eased cargo transport and passenger travel between Nairobi and Mombasa, the railway has been criticised for, among other reasons, continued loss making despite being operational for more than five years now.

In total, Kenya borrowed close to $5.09 billion (Sh600 billion at current exchange rates) for the construction of the two phases of the SGR.

The loans, three in total, were procured from China Exim Bank and denominated in dollars.

The two loans for the Mombasa-Nairobi phase of the SGR, which stood at $1.6 billion (Sh188.6 billion) and $2 billion (Sh235.8 billion) respectively, were signed in May 2014 and had a grace period of seven and five years respectively.

The Nairobi-Naivasha loan of $1.5 billion (Sh176.8 billion) had a grace period of five years, having been signed in December 2015.

The two loans for the Mombasa-Nairobi phase are to be repaid in 13 and 10 years respectively while that for the Nairobi-Naivasha phase of the SGR was to be repaid in 15 years.

The loans repayments are made semi-annually on January 21 and July 21, with the interest rate calculated above the six-month London Interbank Offered Rate (Libor) rate. Libor is the benchmark interest rate at which major global banks lend to one another in the international inter-bank market for short-term loans.

Currently, the six-month Libor rate for dollars, which will come to an end next year, is estimated at 2.88 per cent.

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