World Bank debt rises in final days of Uhuru as Chinese lending falls

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Economy

World Bank debt rises in final days of Uhuru as Chinese lending falls


President Uhuru Kenyatta with World Bank Country Director for Kenya, Keith Hansen. PICTURES | PSCU

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Summary

  • Treasury data shows that funding from the global lender to Kenya increased from 517 billion shillings in June 2019 to 1.125 trillion shillings in December.
  • IMF lending increased from 158.5 billion shillings to 207.5 billion shillings over the same period, while Chinese lending increased from 125 billion shillings to 786 billion shillings.
  • This is a departure from lending trends during the first term of President Uhuru Kenyatta’s reign, when Nairobi was a top recipient of Chinese loans.

The World Bank and International Monetary Fund (IMF) have stepped up lending to Kenya over the past three years, which has seen Chinese loan deals shrink, firming the Bretton Woods institutions’ grip on the biggest economy. from East Africa.

National Treasury data shows total World Bank lending increased from Shs 517 billion in June 2019 to Shs 1.125 trillion in December as block lending came in the wake of the Covid-19 economic difficulties. 19.

IMF lending increased from 158.5 billion shillings to 207.5 billion shillings over the same period, while Chinese lending increased from 125 billion shillings to 786 billion shillings.

This is a break from the lending trends of President Uhuru Kenyatta’s first term, when Nairobi was a major recipient of Chinese loans for the development of mega infrastructure projects such as roads and a railway. modern over the past decade.

Beijing became the largest bilateral creditor after its loans to Kenya increased from 63 billion shillings to 478 billion shillings during President Kenyatta’s first term.

During the first term which ended in August 2017, IMF lending to Kenya increased from 73.7 billion shillings to 77.6 billion shillings, while those of the World Bank increased by 208 billion shillings. shillings.

China’s debt accumulation has caused concern among analysts and activists in recent years as loans have swelled to hundreds of billions of shillings in just a few years while its repayment terms are not made public.

The most notable Chinese-funded project is the Standard Gauge Railway (SGR), the commercial viability of which has come under intense scrutiny.

But for nearly four years now, Kenya has been shedding costly commercial debt to reduce bloated repayments while the Covid-19 pandemic has curtailed revenue collection.

As part of this strategy, he secured hundreds of billions from the IMF and the World Bank, a key element being direct loans to the budget to supplement the public purse for things like paying civil servants’ salaries.

Under the administration of former President Mwai Kibaki, Kenya steered clear of this type of credit, with the bulk of aid from institutions such as the IMF and World Bank coming in the form of support for projects.

This change follows a deteriorating cash position marked by lower revenues, worsening debt service obligations and the effects of the Covid-19 pandemic.

World Bank loans now account for more than all of Kenya’s bilateral loans combined, amounting to 1.09 trillion shillings from countries including China, Belgium, United States, France, Japan, Germany, Austria, Spain, Italy, Finland and Denmark.

This offered the World Bank and the IMF leverage over Kenya’s economic policy planning that would force the government to put in place tough conditions in many sectors, including a freeze on civil servant salaries and the imposition of new taxes.

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.

President Kenyatta, who took the helm in 2013, 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.

The government has defended the increase in borrowing, saying the country needs to invest in its infrastructure, including roads and railways.

The changing lending trends emerged as China reported a reduction in lending to Kenya and other African countries in the coming years after cutting financial commitments to projects on the continent by a third. over the next three years.

President Xi Jinping in December at the Forum on China-Africa Cooperation (FOCAC) pledged to invest $40 billion (4.54 trillion shillings) in African countries over three years.

That’s down 33.33% from the $60 billion (Sh6.81 trillion) the world’s second-largest economy committed to African countries at the last two FOCAC summits, which take place every three years. .

Declining funding for Africa, research economists say, could indicate that Beijing is starting to see signs of diminishing benefits from the money it commits to the continent.

China’s influence on the development of Kenya’s megaprojects began to gain momentum with the construction of the Thika Highway between January 2009 and November 2012 for 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 road projects.

The cash flow reduction plan – which largely comes in the form of lines of credit, investment and trade finance – comes in the wake of rising indebtedness among African countries, compounded by the economic fallout resulting from the pandemic.

Countries like Zambia have struggled to service their external debt in recent years and have become the first to default on Eurobonds, while Ethiopia’s risk of default has increased due to the ongoing civil war which has adversely affected economic prospects.

Kenya, on the other hand, was forced to drop an offer to extend debt relief with Beijing beyond June after Chinese lenders, particularly the Exim Bank, opposed the deal. concluded by the world’s richest countries under the Debt Service Suspension Initiative.

This followed a standoff that saw Chinese financiers delay disbursements, leading to a cash crunch for Chinese-funded projects in June.

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