Chinese lending to Kenya has fallen for the first time in 15 years as Beijing adopts more cautious lending in Africa where some countries have reached the limit of their borrowing capacity and the prospect of default looms.
Treasury data shows China’s total lending fell to $6.83 billion in June, from $7.05 billion a year ago and $3 billion in 2016.
Available public records show that Chinese lending to Kenya fell slightly in 2002. The rare drop in Chinese debt comes at a time when the World Bank and International Monetary Fund (IMF) stepped up lending to Kenya, bolstering the influence of institutions on the country’s economy.
Nairobi has been a major recipient of Chinese loans for the development of mega-infrastructure such as roads and a modern railway over the past decade, making Beijing the biggest bilateral creditor since 2015.
In 2020, the IMF listed more than 20 African countries, including Kenya, as being in debt distress or at high risk of debt distress.
In response, lenders, including China Eximbank and China Development Bank, China’s two main political banks, have adopted increasingly strict lending conditions.
Chinese President Xi Jinping reinforced this caution in a video address to the triennial China-Africa Cooperation Forum held in Senegal in November 2021.
Over the next three years, the Chinese president said, the country would cut the overall amount of funds it provides to Africa by a third to $40 billion and, he hinted, redirect large infrastructure loans towards a new focus on SMEs, green projects and private investment flows.
“China is moving away from this high-volume, high-risk paradigm to one where deals are made on their own merit, on a smaller, more manageable scale than before,” an analysis of China’s loans to Africa by Chatham House, a think tank, said.
The drop in funding from Africa, local analysts say, could indicate that Beijing is starting to see signs of shrinking benefits from the money it commits to the continent.
“I think China’s debt has reached or is approaching a point of diminishing returns based on the large government spending in Kenya, for example. As such, I see China being selective in terms of the projects it funds in the future,” Churchill Ogutu, an economist at IC Asset Managers (Mauritius), told Business Daily earlier.
Chinese lenders have traditionally been flexible on loan terms for projects in Africa, seen as politically important to Beijing.
Over the past two decades, China has established itself as a financier of first resort for many low- and middle-income countries, providing record amounts of international development finance, according to College of William & Mary researchers in a report at the end of September.
Their findings suggest that African countries received 42% of all Chinese official development assistance between 2000 and 2017.
China’s influence over Kenya’s megaprojects began to gain momentum with the construction of the Thika Highway between January 2009 and November 2012 at a cost of nearly 32 billion shillings during President Kibaki’s last term. .
China Road and Bridge Corporation, a subsidiary of China Communications Construction Company, has since won the lion’s share of Kenya’s megaprojects – at least two railways, two ports and 23 road projects.
They include the $3.5 billion (393.82 billion shillings) standard gauge railway, a $398 million (44.78 billion shillings) oil terminal at the port of Mombasa and road projects such than the southern and eastern bypass in Nairobi.
Treasury data shows that debt to China grew by single digits in the two fiscal years ending in June 2021, compared to double-digit growth previously.
For example, China’s debt to Kenya increased by 4.55% in each of the two fiscal years to June 2021 before dropping 3.2% last year. It rose 49% to $4.6 billion in the fiscal year ending June 2017.
Over the past two years, Kenya has secured hundreds of billions from the IMF and the World Bank, a key element being direct loans to the budget to supplement public funds for things like paying civil servants’ salaries. .
World Bank lending nearly doubled in the three years to June, from $5.9 billion to $11 billion, while IMF lending more than tripled to $1.75 billion from $0.48 over the same period.
This offered the World Bank and the IMF influence over Kenya’s economic policy planning that would force the government to implement tough conditions in many sectors, including a freeze on civil servant salaries and the imposition of new taxes.
This triggered echoes of the past when the IMF and World Bank lent generously to African governments in the post-independence era to impose harsh structural adjustment programs on them from the 1980s after governments struggled to to reimburse.
Typically, World Bank loans have zero or very low interest rates and have repayment periods of 25 to 40 years, with a grace period of five or 10 years.
Read also : Kenya’s debt repayments to China reach 73.5 billion shillings
Former President Uhuru Kenyatta, who took office in 2013 and left last month, has overseen an increase in government borrowing.
Total debt stands at 70% of gross domestic product (GDP), up from around 45% when he took office – a rise that some politicians and economists say is burdening future generations with too much debt.
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