China may seize Kenyan assets, external debt reaches more than USD 36 billion

The default occurred a year after Kenya requested a six-month extension of the debt repayment moratorium from bilateral lenders, including China. However, the lenders, particularly the Exim Bank of China, refused to consider Kenya`s application.

Nairobi: Accumulated Chinese loans pushed Kenya near default and Beijing may seize Kenyan assets if it could not pay its debts. Since 2014, Kenya has been taking huge loans from China to fund its infrastructure projects such as roads, clean power generation plants, and its biggest project, the Standard Gauge Railway. Kenya`s external debt reached USD 36.4 billion in June 2022, according to data from the Central Bank of Kenya, reported Financial Post. China, which accounted for about one-third of Kenya`s 2021-22 external debt service costs, is the nation`s biggest foreign creditor after the World Bank. Kenya spent a total of Ksh 117.7 billion (USD 972.7 million) on Chinese debt in the period, of which about Ksh24.7 billion (USD 204.1 million) is in interest payments and almost Ksh 93 billion (USD 768.5 million) in redemptions.

Kenya`s Treasury projects debt repayments to the Exim Bank of China will raise to USD 800 million in the next financial year, a 126.61 per cent surge from the revised USD 351.7 million budgeted for 2022, reported Financial Post. Notwithstanding China`s frequent denial of pushing developing Afro-Asian countries into debt traps, Kenya is the new entrant in the list of defaulting countries. Moreover, the Chinese banks fined Kenya Ksh1.312 billion (USD 10.8 million) in the year ended June for loan defaults. Kenya defaulted on repayment of the Chinese loans taken to build the standard gauge railway (SGR).

The deal to fund the first phase of the SGR, Kenya`s single-largest infrastructure project by cost since independence, saw China overtake Japan as Kenya`s largest bilateral lender. But the initial jubilation has turned to instability, reported Financial Post. The default came in a year when Kenya had asked for an extension of the debt repayment moratorium from bilateral lenders, including China, by another six months. But the lenders, especially the Exim Bank of China, did not entertain Kenya`s application for a debt repayment holiday, causing a standoff that delayed disbursements to projects funded by Chinese loans, reported Financial Post.