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Half of financing deal brokered with China is commercial loan

By James Anyanzwa | May 13th 2014

By James Anyanzwa

NAIROBI, KENYA: President Uhuru Kenyatta has brokered yet another mega financial deal with the Chinese Prime Minister Li Keqiang despite fears that the Government’s increased borrowing from the East could plunge the country into a debt overhang.

National Treasury Cabinet Secretary Henry Rotich yesterday disclosed that over 50 per cent (Sh174 billion) of the Sh340 billion financial agreements signed with the Chinese Government on Sunday is a commercial loan.

Mr Rotich said the loan would attract an interest rate of 4.4 per cent per annum over a period of 12 years, with five years grace period.

He said the other component of the financing is a concessional loan, which carries a fixed interest rate of two per cent per year over a repayment period of 20 years, with a grace period of seven years.

But even as Kenya considers itself a special darling for China, it is   feared that the new borrowing is likely to worsen the country’s external debt position currently estimated at Sh850 billion, according to data from the National Treasury.

Rotich, however, appeared to dispel these fears saying there is no cause for alarm, as long as the proceeds of the debt are used to spur the growth of the economy.

"As long as the debts are used for economic growth then the debt does not pose any serious challenge," he told reporters in Nairobi yesterday, adding that debts are used for generating future wealth.

Public debt

He noted that the level of the country ‘s public debt is still manageable at 50 per cent of the Gross Domestic Product (GDP).

But data from the National Treasury’s monthly debt bulletin shows that the level of public and publicly guaranteed debt stood at Sh2.12 trillion or 50.9 per cent of GDP as at the end of January this year.

The National Treasury is also considering issuing $2 billion (Sh174 billion) sovereign bond to fund the country’s infrastructural projects and during the visit to China last year President Kenyatta concluded eight deals worth $5 billion (Sh435 billion) with the Chinese government.

For China, the message was clear that the country is less concerned with Kenya’s political situation but rather with opportunities that can fuel its own economy and where it can invest billions lying idle in its coffers. Today a mention of any major infrastructure project from Thika Superhighway, Eastern and Southern Bypasses, Jomo Kenyatta International Airport (JKIA) expansion among many others has a Chinese connotation.

Terminal project

Chinese loans are also earmarked for the development of the Standard Gauge Railway, Lamu Port, Southern Sudan-Ethiopia Transport Corridor and the Greenfield Terminal project at JKIA.

Over the past decade, Kenya’s public debt has increased significantly with notable shift in the composition of the bilateral lenders.

While in the 1980s and 90s the foreign debt in terms of bilateral lenders was mainly from capitals like London, Washington DC, Tokyo, Berlin, Paris among others, today Beijing is the dominant force.

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