Few deny Kenya has a “debt problem”, but the country is not in a “debt crisis” – not yet. ILLUSTRATION | NATION MEDIA GROUP The coronavirus epidemic is raising the scale of indebtedness in Africa.
In Kenya, the pandemic has slowed down economic growth from an initial projection of 6.2 per cent to 3.4 per cent – the slowest since 2009.
Moreover, an array of social-distancing protocols to contain the spread of Covid-19 has severely disrupted economic activity, diminishing Kenya’s capacity to meet all its debt obligations. The disease has also raised external debt by Sh158 billion ($1.58 billion).
Even after the coronavirus cloud has passed, its impact will haunt efforts to modernise structures and guarantee social and political stability in low-income countries like Kenya.
China, which is entering its post-Covid-19 phase, is by far Kenya’s largest bilateral lender. This raises the question: how can China help Kenya cope with the impact of coronavirus debt?
Kenya’s debt portfolio is complex. The country’s total national debt reached an all-time high of Sh6.3 trillion by the end of March 2020, very close to the 70 per cent of the Sh9 trillion ($90 billion) national debt ceiling. Its debt to China stood at Sh660 billion ($6.6 million) as of end of March 2020.
China’s debt is about 10 per cent of Kenya’s total national debt, accounting for 72 per cent of its bilateral debt, over 22 per cent of the country’s total external debt while 90 per cent of the country’s repayment of bilateral debt is to Beijing.
PRIVATE CREDITORS
Between 2006 and 2017, Kenya acquired at least $9.8 billion, making it Africa’s third-largest recipient of Chinese loans. These include funds to build the Standard Gauge Railway (SGR) from Mombasa to Malaba. By May 2020, China surpassed all of Kenya’s traditional bilateral creditors combined.
Despite this, Kenya owes the bulk of its debt to multilateral financial institutions, mainly the International Development Association (the World Bank Group) and the private sector.
On the whole, these two lenders of choice own 35 per cent and 32 per cent of Africa’s debt, respectively.Between 2014 and 2020, the country secured a relatively small commercial debt from the International Debt Capital Markets.Kenya’s immediate financial trouble in combating coronavirus comes from debts from external private markets.Unlike bilateral creditors like China, private lenders are predisposed to be less forbearing to borrowers in the face of Covid-19. This raises the risk of default as a result of the […]
