Africa Defense Forum
ADF is a professional military magazine published quarterly by U.S. Africa Command to provide an international forum for African security professionals. ADF covers topics such as counter terrorism strategies, security and defense operations, transnational crime, and all other issues affecting peace, stability, and good governance on the African continent.

Despite A Growing Debt Load, Kenya Looks to Borrow More From China


Kenyan President William Ruto has asked China for another $1 billion in loans to finish stalled projects even as he faces a moment of reckoning with billions in earlier Chinese loans coming due next year.

Kenya currently owes China $6.3 billion, most of it for the construction of the $5.5 billion Standard Gauge Railway (SGR) running from Mombasa to the Rift Valley. The railway was supposed to pay for itself by hauling freight between the coast and landlocked countries such as Uganda.

The Chinese-directed feasibility study that underpinned the project claimed the railway would be profitable by moving 20 million metric tons of freight a year, or 20 trains every day — more than double the line’s actual operating capacity, according to a study by the Kenya Institute for Public Policy Research and Analysis.

After Uganda pulled out of the railway project, it has fallen far short of projections, both literally and figuratively. The rail line ends in the middle of a field west of the city of Naivasha about 300 kilometers short of its planned border crossing. Six years after launching, the railway has reached 20 trains a day, but it still well below the freight volumes it needs to turn a profit.

Under the terms of the loan, the government is on the hook to repay the railway’s loans if it can’t do so.

“The SGR, as is, is a dud,” economist Aly Khan Satchu told the Associated Press. “To make it sustainable, it needs to connect Uganda’s oil to the sea.”

Kenya’s Chinese loans make up 64% of its bilateral debt, a category of loans made by two parties rather than multilateral institutions such as the World Bank or International Monetary Fund. Chinese debt comprises predominantly loans made through commercial institutions such as the China ExIm Bank. That means they’re unlikely to be forgiven but could be renegotiated to extend the repayment period.

Ruto planned to seek a slower repayment schedule when he visited China in October as part of the 10th anniversary of China’s Belt and Road Initiative. The initiative has built a variety of major infrastructure projects across Africa while flooding Kenya and many other countries on the continent with massive amounts of debt.

Kenya’s total debt grew sharply over the last decade, growing from 38% of gross domestic product (GDP) in 2012 to 67% of GDP today — a level the World Bank and IMF consider a high risk of creating financial distress.

According to international bond rating agency Fitch, Kenya’s total debt payments grew from $2.8 billion in 2023 to $4.3 billion for the current budget year that ends in June 2024. Debt payments make up more than one-sixth of the country’s $24.4 billion national budget.

International financial analysts say Kenya appears to be able to keep up with its debt payments in the short term but could be at risk of defaulting on them by 2025. Analytics firm IHS Markit puts the odds of a Kenyan default at 35%.

The falling value of the Kenyan shilling is causing the country’s debts to balloon. Despite that, Finance Minister Njuguna Ndung’u said in June that the government will pay its bills when they come due.

The looming threat of large loan payments prompted Ruto to limit official travel and demand that his government ministers cut their budgets by 10%. Ruto has also increased taxes on fuel and housing to generate revenue for debt payments. Passenger fares on the SGR will also rise by 30% to 50%.

In July 2023, Kenya’s semi-annual SGR debt payment to China reached $356 million, making up nearly 80% of that month’s $451 million debt payout, the government reported.

Even as Ruto seeks more money from China, Karuti Kanyinga, a researcher at the University of Nairobi’s Institute for Development Studies, warns that Kenya may be painting itself into a corner financially.

“Kenya’s currency is depreciating,” Kanyinga told Africa News. “Therefore, we are paying through the nose. Most of our earnings are actually going to paying Chinese loans. That is not sustainable.”

You might also like

Leave A Reply

Your email address will not be published.