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Kenya in race to meet Chinese loan deadline for repayment

Eric Olander
By Eric Olander

Managing Editor, The China Africa Project

Posted on Friday, 15 January 2021 16:21, updated on Monday, 8 March 2021 12:51

NAIROBI, Oct. 13, 2020 (Xinhua) -- A train arrives at the Maai Mahiu Station of the Nairobi-Naivasha Standard Gauge Railway Credit:CHINE NOUVELLE/SIPA/2010131007

Kenyan Treasury officials are no doubt worried about what's going to happen next Thursday. The date marks the end of a five year repayment holiday given by the China Exim Bank for the $1.4 billion loan used to build the Nairobi to Naivasha Standard Gauge Railway.

Unless officials from both countries come up with a last-minute deal to restructure either the loan or China’s broader debt portfolio in Kenya, the Treasury’s going to have to cut a pretty large check using what little money it has available.

The COVID-19-induced economic downturn has hit Kenya disproportionately hard. Unlike the DRC, Angola, and Nigeria, Kenya lacks the kind of natural resources that even when prices are low are still able to generate badly-needed cash flow. Instead, the Kenyan government has to look for other ways to generate income but with a slowing economy and declining tax receipts that isn’t easy.

READ MORE Kenya in 2020: Coming out strong, even if a little bruised

In the meantime, the country is forced to borrow more, pushing up its already sizable national debt to the point where a growing number of observers are starting to really wonder how the government’s going to come up with the cash needed to service all of those loans. It now seems all but certain that Kenya will smash through the once unimaginably high Sh9 trillion ($81 billion) debt ceiling. Treasury data published in February 2021 shows that as of December 2020, debt to China was at KSh7bn.

With about $6.98bn of outstanding loans, China is by far Kenya’s largest bilateral creditor but still accounts for less than 10% of the country’s current $76bn total debt. Despite many of the prevailing assumptions, China’s actually proven to be far more flexible than many of Africa’s other major creditors in restructuring and postponing debt repayments. Just this week we saw this in Angola, last fall in Zambia and previously in Ethiopia.

READ MORE Kenya: China faces a critical test in train debt

And Kenyans are no doubt hoping they’ll also be able to persuade their bankers in Beijing to make a similar arrangement. But there’s no guarantee and the Chinese have proven to be rather tough negotiators. They’ve got until 21 January to figure something out.

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