• China has fined Kenya Sh1.312 billion for defaulting on its debt repayment. 
  • Kenya is requesting a debt repayment extension.
  • However, China has refused to extend the debt payment deadline. 

One of the key subjects discussed during the 77th United Nations General Assembly was debt restructuring and debt payment extension for impoverished African countries.

While Kenya is not exactly an impoverished country, Kenya is still considered a developing nation by the world bank, due to poverty, inequality, youth unemployment, transparency and accountability, climate change, continued weak private sector investment, and the vulnerability of the economy to internal and external shocks.

Kenya
Kenya

The country’s inability to quickly settle its external debt should come as no surprise, and realistically should not warrant any drastic action, yet, Chinese banks have fined Kenya Sh1.312 billion in the year ended June for loan defaults.

Kenya acquired half a trillion shillings from Chinese lenders to fund its standard gauge railway project, which would run from Mombasa to Naivasha.

The responsibility to pay back this loan has fallen primarily on the nation’s taxpayers, as the revenue generated from the passenger and cargo services on the track hardly meets the operation costs, which are currently listed at a total of Sh18.5 billion in the year to June against sales of Sh15 billion.

China and Kenya have developed a commercial relationship since 2009. The Middle Kingdom has been keen on the development of the region, pouring in huge amounts of money to grow the East African nation’s economy.

It began with the construction of the Thika Superhighway between January 2009 and November 2012 at a cost of nearly Sh32 billion, which China funded. Since then, Kenya’s debt to China has increased to $6.84 billion (about Sh793 billion).

Thika Superhighway
Thika Superhighway

Kenya’s default follows its appeal for an extension of the debt repayment to China, by another six months. This has fallen on deaf ears, as Chinese Banks typically operate under obscure and what has been described as unusual policies. Unlike the Chinese governments, these private institutions are not morally inclined to be considerate.

However, it may be counterintuitive to speed up the repayment of a debt, by adding more dues to the debt. Kenya is in a tight spot economically, as a matter of fact, the entire Sub-Saharan region is in an economic bind. Parasitic economic issues have catalyzed the generation of the region’s revenues negatively.

This hardly deterred lenders like the Exim Bank of China, from opposing Kenya’s application for a debt repayment extension.

China postponed the repayments in January last year, helping Kenya temporarily retain Sh27 billion that was due for six months, ending June 2021. However, they have refused to accord the same grace as they worry that debt extension could strain the relationship between both countries.

China grants Kenya Sh51 Billion to boost trade
China grants Kenya Sh51 Billion to boost trade

Repayment of the SGR loan started in January 2020 following the lapse of a five-year grace period that Beijing had given Kenya.

The loan owed to China was the previous administration’s prerogative and as such its responsibility. However, the new administration is met with an automatically inherited problem.

While both parties present a strong case, Kenya’s debt to China is Sh117.7 billion, Sh24.7 billion and counting, which is in interest payment. With this, the question remains, is adding more debt to China’s already extensive debt going to yield results, or is it just more money China will struggle to realize?

China currently accounts for one-third of Kenya’s 2021-22 external debt service costs.

Pulse