- The World Bank had estimated that Kenya could save Sh55.9 billion from China between January and June under the DSSI agreement on the principal and interest payment freeze.
- But China announced that Kenya would be granted 26 billion shillings ($ 245 million) relief.
- A parliamentary disclosure indicated that part of the relief came from SGR’s financier, China Exim bank.
Kenya has withdrawn its request for China to extend the debt repayment holiday until December in the wake of opposition from Chinese lenders that recently froze disbursements to local projects.
The Treasury says Kenya has decided not to seek an extension of debt relief beyond June, adding that the country is paying in full to the Exim Bank of China, which financed the construction of the standard gauge railway (SGR).
Chinese lenders, especially Exim Bank, were uncomfortable with Kenya’s push to extend debt service suspension to rich nations, causing delays in disbursements for projects financed by Chinese financiers.
The Chinese embassy in Nairobi acknowledged the financial problem, adding that the matter was being addressed by officials from the two countries.
Now, Nairobi is giving up its pressure for China to extend debt relief holidays for fear of straining relations with Kenya’s largest foreign creditor.
“There is no request to the Chinese government for an extension of the debt moratorium. Kenya is servicing its debts to Exim Bank in line with the DSSI agreement,” Chief Treasury Secretary Julius Muia told Business Daily.
Data from the Central Bank of Kenya (CBK) shows that foreign exchange reserves fell by 35.2 billion shillings between July 15 and July 21. The banking regulator did not offer the reasons behind the drop. But World Bank data shows that the only major payment on Kenya’s debt in July was for loans linked to SGR, indicating the repayment of Chinese loans.
China-funded projects faced a cash crisis in June, with contractors reporting late payments from banks such as Exim Bank of China.
Executives at state-owned companies said in July that projects were at risk of delays due to financing problems.
“Payment to contractors working on Chinese projects and payment by direct method has been delayed since last month [June]. We are told that Chinese banks are not clearing bills due to the moratorium, “said a chief executive of a state corporation who spoke on condition of anonymity.
The direct method involves Kenyan companies with Chinese loans sending vendor payment notices to Chinese banks through the Treasury.
The terms of China’s loan agreements with developing countries are unusually reserved and require borrowers to prioritize repayment from Chinese state banks over other creditors. A cache of such 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, comprises 100 Chinese loan contracts with 24 low- and middle-income countries, some of which struggle under a growing debt load amid the economic situation. consequences of the Covid-19 pandemic.
It uncovered several unusual features, including confidentiality clauses that prevent borrowers from disclosing loan terms, informal collateral arrangements that benefit Chinese lenders over other creditors, and promises to keep debt out of collective restructurings, which the authors call “no Paris Club”. “Clauses, the report said.
The Paris Club is a group of officials from the main creditor countries whose function is to find solutions to the payment difficulties faced by the debtor countries. China is not among the 22 member countries of the club.
Beijing is one of Kenya’s largest foreign creditors, having loaned Sh758 billion in April 2021 to build rail lines, roads, and other infrastructure projects in the last decade.
In January, China and other rich countries under the Debt Service Suspension Initiative (DSSI) gave Kenya six-month debt relief.
The impact of the Covid-19 pandemic has hit Kenya’s tax revenue collection at a time when more of its debts are coming due and it continues to grapple with huge fiscal deficits.
G20 countries, including Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Republic of Korea, Spain and the USA, rescheduled payments of 32.9 billion shillings of principal and interest due between January and June for the next four years with a grace period of one year.
The International Monetary Fund (IMF) has revealed that Kenya had sought an extension of debt relief from the G20 countries through December, saving an additional Sh39 billion ($ 361 million).
While China is a member of the G20 and a signatory to the agreement, a large proportion of its loans to Kenya have been made on a commercial basis by government agencies, quasi-public corporations, and by state-owned banks such as China Development Bank and Exim. Bank of China.
China has tried to negotiate its debt relief deals separately, but applying the same terms as the G20 countries, while reserving the right to the size and loans that will attract the moratorium.
The World Bank had estimated that Kenya could save Sh55.9 billion from China between January and June under the DSSI agreement on the principal and interest payment freeze.
But China announced that Kenya would be granted 26 billion shillings ($ 245 million) relief.
A parliamentary disclosure indicated that part of the relief came from SGR’s financier, China Exim bank.
President Uhuru Kenyatta’s administration has borrowed across much of China since 2014 to build roads, bridges, power plants, and the SGR.
This began after Kenya became a lower-middle-income economy, excluding it from soft loans from development lenders such as the World Bank.