Kenya racing to meet Chinese loan repayment deadline

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Through Eric Olander

Editor-in-Chief, The China Africa Project

Kenyan Treasury officials are undoubtedly worried about what will happen next Thursday. The date marks the end of a five-year repayment holiday granted 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 to a last-minute deal to restructure either the loan or the larger Chinese debt portfolio in Kenya, the Treasury is going to have to write a sizeable check with the little money it has.

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

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

Waiting for, the country is forced to borrow more, increasing its already large national debt to the point that a growing number of observers are starting to really wonder how the government is going to find the liquidity to pay off all these loans. It now seems almost certain that Kenya will crush the once unimaginably high debt ceiling of 9 trillion shillings ($ 81 billion). Treasury data released in February 2021 shows that in December 2020 the debt to China was KSh 7 billion.

With about With $ 6.98 billion in outstanding loans, China is Kenya’s largest bilateral creditor by far, but still accounts for less than 10% of the country’s current total debt of $ 76 billion. Despite many of the prevailing assumptions, China has in fact been shown to be much more flexible than many of Africa’s other major creditors in restructuring and deferring debt repayments. This week alone we saw it in Angola, last fall in Zambia and before in Ethiopia.

READ MORE Kenya: China faces critical test of rail debt

And the Kenyans are no doubt hoping that they will also be able to persuade their bankers in Beijing to make a similar arrangement. But there is no guarantee and the Chinese have turned out to be rather tough negotiators. They have until January 21 to find a solution.

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