NAIROBI, Kenya
The elevation of Kenya to the middle-income status saw China lock the country out of a new list of African nations that will receive a Beijing debt relief this year, under a plan by the world’s second-largest economy to help 17 poor states in the continent saddled with its huge loans forego their repayments.
The deal announced last week
will see Beijing forgive 23 matured interest-free loans for 17 unnamed African
countries, which are classified as least developed countries.
Beijing made the announcement
during the Forum on China-Africa Cooperation that seeks to boost ties between
China and its African allies.
Chinese Foreign minister Wang
Yi said at the forum the debt relief plan “demonstrates China’s commitment to
fostering stronger economic ties with the African continent”.
Chinese authorities in Nairobi
said Wednesday Kenya was left out of the deal as it is classified as
lower-middle income, which the new Beijing scheme does not apply to.
State Councillor and Foreign
minister Wang Yi mentioned during his remarks at the coordinators’ meeting on
the Implementation of the Follow-up Actions of the Eighth Ministerial
Conference of the Forum on China-Africa Cooperation that China will waive the
23 interest-free loans for 17 African countries that had matured by the end of
2021,” the Chinese embassy in Nairobi told the Business Daily.
“The African countries
mentioned here refer to the least developed countries. Therefore, Kenya is not
on this list,” added the Chinese authorities.
Kenya, which is East Africa’s
largest economy, joined the league of the world’s lower middle-income nations
in 2014, having crossed the United Nations’ $1,045 gross domestic product (GDP)
per capita threshold after rebasing its economy.
China, which accounts 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 planned to spend a total
of Sh117.7 billion on Chinese debt in the period, of which about Sh24.7 billion
is in interest payments and almost Sh93 billion in redemptions, according to
budget documents.
Kenya faced a deteriorating
cash-flow situation, marked by falling revenues, worsening debt service
obligations, and the effects of the Covid-19 pandemic. The debt burden has
recently been compounded by the economic turmoil unleashed by the war in
Ukraine but Kenya has never defaulted on its obligations.
Kenya last year asked for an
extension of the debt repayment moratorium from bilateral lenders, including
China, by another six months to December 2021, saving it from committing
billions to Beijing lenders.
The moratorium started in
January 2021.
China postponed the repayments
in January, helping Kenya temporarily retain Sh27 billion, which was due for
six months ending June 30.
But opposition from Chinese lenders
forced Nairobi to drop its push for an extension of the debt repayment holiday
to avoid straining relations with Kenya’s biggest bilateral creditor.
Kenya earlier wired Sh29.86
billion to China in the quarter to September 2021 to ease a standoff over debt
repayments that delayed disbursements to projects funded by Chinese loans.
Treasury documents revealed
earlier that Kenya paid the billions in a period when Chinese lenders,
especially Exim Bank, had opposed Kenya’s application for a debt repayment
holiday.
The G20 countries, including
Belgium, Canada, Denmark, France Germany, Italy, Japan, Republic of Korea,
Spain and the USA, rescheduled payments of Sh32.9 billion in principal and
interest due between January and June to the next four years with a one-year
grace period.
While China is a G20 member
and a signatory to the deal, a large proportion of its loans to Kenya has been
made on a commercial basis by government agencies, quasi-public corporations
and by state-owned banks such as China Development Bank and Exim Bank of China.
China has sought to negotiate
its debt relief deals separately but applying the same terms as the G20
countries while reserving the right on size and which loans will attract the
moratorium.
President Uhuru Kenyatta’s
administration has largely taken loans from China since 2014 to build roads,
bridges, power plants and the standard gauge railway (SGR).
This started after Kenya
became a lower-middle-income economy, locking her out of highly concessional
loans from development lenders such as the World Bank.
The terms of China’s loan
deals with developing countries are unusually secretive and require borrowers
to prioritise repayment to Chinese state-owned banks ahead of other creditors.
A cache of such contracts was revealed in an earlier report by Reuters.
The dataset -- compiled over
three years by AidData, a US research lab at the College of William & Mary
-- comprises 100 Chinese loan contracts with 24 low- and middle-income
countries, a number of which are struggling with mounting debt amid the
economic fallout from the Covid-19 pandemic.
It uncovered several unusual
features, including confidentiality clauses that prevent borrowers from
revealing the terms of the loans, informal collateral arrangements that benefit
Chinese lenders over other creditors and promises to keep the debt out of
collective restructurings -- dubbed by the authors as “no Paris Club” clauses.
The Paris Club is a group of
officials from major creditor countries whose role is to find solutions to the
payment difficulties of debtor countries.
China’s “Belt and Road”
initiative has been praised by supporters for providing vital financing to
infrastructure-starved countries. Critics, including the United States, say the
program is overloading poor nations with debt.
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