Kenya’s debt to China has passed the 100 billion Kenyan shilling mark.
According to reports, East Africa’s biggest economy owes the world’s second largest economy 101 billion Kenyan shillings so far in its 2014/2015 financial year further bolstering their economic ties and becoming the country’s largest bilateral financier.
“If you look at the portfolio of debt that is coming from Kenya, it is most likely being channeled into financing Kenya’s expansion programme on infrastructure which actually requires a lot of investments,” Kenneth Okwaro, director at Africa Centre for People Institutions & Society told CNBC Africa.
Last year, the two governments signed 17 agreements worth billions of shilling for various projects. From Kenya’s Standard Gauge Railway (SGR), which China is financing 85 per cent of the total cost through the Export and Import (Exim) Bank of China, to 5.1 billion Kenyan shillings for the setting up of the China -Africa Research Centre in Nairobi and 880 million Kenyan shillings for the establishment of ecological and Wildlife Protection, China’s lending to Kenya continues to grow.
Since 2008, the Chinese government has given Kenya loans and grants for various projects as many African states look to the East for partnership.
As the country’s growing national debt levels continues to rise the Nairobi Securities Exchange (NSE) notes that the country’s external debt to GDP remains sustainable and the success of Kenya’s inaugural Eurobond which was heavily subscribed has increased appetite for cheap hard currency borrowing.
“The portfolio of Kenya’s debt that is commercial is exponentially increasing. That component that was concessional is reducing which means that the time for paying that loan at a higher interest rate and therefore we will then have to pay more than you would have paid if we would have approached our traditional lenders for example in the European Union,” Okwaro said.
Nonetheless, the bourse predicts that government debt could increase by 16 per cent to hit 2.9 trillion Kenyan shillings this year due to an increase in infrastructure development.
Last year, the International Monetary Fund (IMF) and the World Bank urged Kenya to put a tight lid on its debt load to keep its economy on a steady growth path. Kenya’s debt load crossed the 50 per cent of GDP mark in 2013.
Moreover, the country’s external as well as domestic debt to GDP ratios increased to 24.6 per cent and 27.1 per cent in December 2014 from 22.8 per cent and 27.0 per cent in June 2014.
According to official Chinese data, since 2009, China has been Africa’s largest trading partner for five consecutive years and an important source for new investments on the continent.