Kenya’s public debt has surpassed the Sh5 trillion mark for the first time, raising questions over the country’s ability to bear the burden in the long term.
While foreign debt stands at Sh2.5 trillion as at the end of February, more than 70% of this is Chinese owned translating to Sh534 billion positioning China as Kenya’s biggest lender by the end of March according to Business Daily. This is more than 3 times the combined debt Kenya owes France, Japan, Germany, and Belgium.
Over the last years, economists have previously raised questions over sustainability especially after Kenya raised its appetite for commercial debt such as the Eurobonds and syndicated loans that carry higher interest rates compared to credit from traditional lenders such as the World Bank and Africa Development Bank but the government has defended its borrowing spree saying it is part of the efforts to boost infrastructural development like transport, telecommunication, and energy.
“Kenya still has a heavy debt burden and China’s loans can bring debt to unsustainable levels. Some of China’s loans are non-concessional, which can raise debt to GDP levels quickly,” a World Bank report on China’s impact in Kenya in May concluded.
Chinese loans to the African continent always come with contingents of a Chinese company being contracted to carry out the projects. A case example is the SGR project which has been mainly financed by China’s Exim Bank of China and Thika Road Super Highway which was financed and built by China. And it has often accused of practicing “debt-trap diplomacy” that involves offering cheap, predatory and opaque loans helping it access natural resources and further its diplomatic interests.
14 African nations have recently met to discuss whether to hold the yuan as part of their foreign reserve placing China has a global financial power by internationalizing its currency.