China accounts for approximately 42.0% of Kenya’s foreign debt repayment
According to data from the National Treasury, Kenya’s foreign debt repayment came in at Ksh.15.5 billion for the quarter ending September 2016. Not surprising, China accounts for approximately 42.0 percent of the repayments. That is almost half of Kenya’s foreign debt. Kenya’s foreign debt repayment to China comes in at Ksh.6.4 billion which comprises a principal amount of Ksh.1.1 billion and interest payments worth Ksh.5.3 billion.
The country also repaid Ksh.4.8 billion to the International Development Association (IDA), an arm of the World Bank that offers concessional funds to low-income and post-conflict countries. Apart from that, there were also repayments of Ksh.1.1 billion and Ksh.1.0 billion to France and Japan, respectively.
Last year the World Bank warned Kenya over the rising appetite for Chinese debt, which grew by 54.0 percent annually between 2010 and 2014. World Bank’s argument was that the huge repayment burden is unsustainable and risks crippling the economy. This is especially due to the fact that these loans are characterized by a lack of transparency, given China does not tie conditions based on key governance reforms to loans. Further, some of the loans issued are non-concessional and expensively priced.
Despite this, the debt sustainability update in March 2016 indicated that Kenya faces low risk to external debt distress. However, going forward, there are risks associated with the changing funding patterns that could see the debt levels continue to rise, and are already above the 50.0 percent threshold set by International Monetary Fund (IMF) for frontier markets. Currently, Kenya’s debt level is at 54.9 percent of GDP as per the Annual Public Debt Management Report for the year ended June 2016.
The Government is ahead of its domestic borrowing for this fiscal year having borrowed Ksh.168.2 billion for the current fiscal year against a target of Ksh.150.1 billion. This is assuming a pro-rated borrowing throughout the financial year of Ksh.229.6 billion budgeted for the full financial year. The government has only borrowed Ksh.45.8 billion from the foreign market, representing 9.9 percent of its foreign borrowing target of Ksh.462.3 billion.
It is important to note, however, that the government is in the process of revising its domestic borrowing target upwards to Ksh.294.6 billion, which will take the pro-rated borrowing target to Ksh.192.6 billion, implying that the government will fall behind its borrowing target.
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