China gives Kenya the tiniest loan since 2008 in fresh shift
Wednesday May 03 2023
China’s loans for President William Ruto’s first full-year budget will be the smallest in 16 years as Beijing adopts a more cautious approach to lending in Africa where some nations have reached the limit of their borrowing capacity and the prospect of default looms.
Treasury documents made public on Tuesday show that Chinese funding for the year starting July will fall to Sh1.74 billion from Sh29.5 billion in the current fiscal year and Sh71.2 billion in 2017.
The rare fall in Chinese loans emerges in a period when the World Bank and the International Monetary Fund (IMF) have stepped up lending to Kenya, firming their grip on the country’s economy.
Nairobi has been a major beneficiary of China’s loans for the development of mega infrastructure such as roads and a modern railway over the last decade, making Beijing the largest bilateral creditor since 2015.
In the last few years, China, which built the Thika Super Highway during former President Mwai Kibaki’s term and the standard gauge railway (SGR) under President Uhuru Kenyatta, has not approved any new funding for a mega infrastructural project.
The Treasury data show that much of the Sh1.74 billion for the new budget will be pumped into the State Department for Information Communication Technology & Digital Economy while the rest, Sh140 million, will go to roads.
Read: China loans to Kenya fall for first time in 20 years
China’s loan commitment for the fiscal year starting July is far less than new debts expected from World Bank and other European bilateral lenders like France and Germany, which have intensified the fight for major deals in Kenya.
The Ruto administration, which took over last September, has committed to reducing its rate of borrowing, with foreign loans committed for the new budget falling to Sh313.8 billion from the current Sh326 billion.
Public debt surged under the administration of Dr Ruto’s predecessor, Mr Kenyatta, who presided over a massive infrastructure construction drive.
Kenya’s debt increased more than four-fold to Sh8.66 trillion during Mr Kenyatta’s 10-year era that started in 2013. The surge in liabilities left the country at high risk of debt distress, according to the IMF.
Kenya has insisted it cannot default on its debt repayment obligations. The IMF in 2020 listed more than 20 African countries, including Kenya, as being in or at high risk of debt distress.
In response, lenders, including China Eximbank and China Development Bank, China’s two main policy banks, have adopted increasingly hardline lending terms.
Chinese President Xi Jinping reinforced that caution in a video speech at the triennial Forum of China-Africa Cooperation held in Senegal in November 2021.
Over the next four years to 2025, the Chinese president said, the country would cut the headline amount of money it supplies to Africa by a third to $40 billion.
His speech signalled lending would be redirected away from large infrastructure towards a new emphasis on SMEs, green projects and private investment flows.
“China is moving away from this high-volume, high-risk paradigm into one where deals are struck on their own merit, at a smaller and more manageable scale than before,” an analysis of China’s lending to Africa by Chatham House, a UK think-tank, said.
Lower funding to Africa, local analysts say, could be a pointer that Beijing is starting to see signs of reduced benefits from the cash it commits on the continent.
Chinese lenders have traditionally shown flexibility on loan terms for projects in Africa, seen as politically important for Beijing.
China has over the past two decades established itself as a financier of first resort for many low- and middle-income countries, providing record amounts of international development finance, according to the researchers at the College of William & Mary in a report late September.
Their findings suggested that African countries received 42 percent of all Chinese official development assistance between 2000 and 2017.
China’s influence on Kenya’s mega projects started gathering steam with the construction of the Thika Superhighway between January 2009 and November 2012 at a cost of nearly Sh32 billion in the last term of former President Kibaki.
China Road and Bridge Corporation, a subsidiary of China Communications Construction Company, has since bagged the lion’s share of Kenya’s mega projects — at least two railways, two ports and 23 road projects.
Read: World Bank clout rises as China cuts Kenya loans
They include the $3.5 billion (Sh393.82 billion) SGR, a $398 million (Sh44.78 billion) oil terminal at the Mombasa port and road projects such as the Southern and Eastern Bypass in Nairobi.
Treasury data show debt contracted from China has grown by single-digit in the two financial years to June 2021 compared with double-digit growth previously.
World Bank loans nearly doubled in the three years to June from $5.9 billion to $11 billion while those of the IMF more than tripled to $1.75 billion from $0.48 in the same period.
This has offered the World Bank and the IMF influence on Kenya’s economic policy planning that would require the government to implement tough conditions across many sectors, including a freeze in civil servants’ pay and the imposition of new taxes.
China’s total lending stood at Sh850 billion in December from Sh63.1 billion in June 2013.