Kenya spends USD 1 billion in a year to repay Chinese loans, burdening taxpayers

Nairobi [Kenya], July 16 : Amid unrest in Kenya due to debt distress, it is reported that the country has spent 152.69 billion KES (about 1 billion USD) to repay debt to China in the just-ended financial year, highlighting the burden on taxpayers in servicing loans taken to build a modern railway and other infrastructure projects, according to a report by Business Daily.
The Kenyan Business Daily stated that the cash sent to Beijing comprised nearly 100.47 billion KES (703 million USD) in principal sums that fell due, and 52.22 billion KES (365.54 million USD) in interest, according to disclosures by the Treasury.
The total amount paid represents a 42.14 per cent jump over the 107.42 billion KES paid in the previous year, ending June 2023.
The Business Daily reported that the data shows Nairobi ended up paying 40.76 billion KES (approximately 285 million USD) more than it had budgeted at the beginning of the fiscal year, driven by movements in benchmark interest rates and conversion rates for the Kenyan shilling.
The newspaper quoted a dataset compiled by AidData, a US research lab at the College of William and Mary: "The terms of Beijing's loan deals with developing countries are usually secretive and require borrowing from nations such as Kenya to prioritise repayment of Chinese state-owned banks ahead of other creditors."
The dataset, based on analysis of loan agreements between 2000 and 2019, suggested that Chinese deals have clauses for "more elaborate repayment safeguards" than its "peers in the official credit market."
The Business Daily quoted an official at the Treasury's Public Debt Management Office, who attributed the 36.42 per cent climb in repayments to China from the original estimates of 111.93 billion KES (approximately 783.51 million USD) to "depreciation of the shilling and revised interest based on floating rates."
Kenya usually repays China for its loans in July and January of each year. As of March 2024, Kenya's debt to China stood at USD 5.67 billion (about 737.66 billion KES under the prevailing conversion rate of 130 KES per dollar).
The increased debt payments to China have come at a time when the United States has flagged Kenya's elevated debt servicing costs for limiting President William Ruto's administration's fiscal space to adequately fund development projects in education, healthcare, and housing, said a report by Business Daily.
It added that Kenya, under the administration of former President Uhuru Kenyatta, largely took loans from China to build roads, bridges, power plants, and the Standard Gauge Railway (SGR) in a bid to spur economic activities and create jobs for the growing skilled youth population.
That borrowing binge around 2014 occurred after Kenya became a lower-middle-income economy, which limited its access to highly concessional loans from development lenders such as the World Bank Group.