Multilateral Borrowing Could Salvage Kenya’s Appetite for Chinese Debt

Kenya’s focus on Chinese debt is hurting the economy and should the lender take critical measures, strategic assets will be lost, which is why experts suggest that the government consider multilateral borrowing.

Instead of borrowing from a single lender (China) in what is referred to as bilateral borrowing, the country could source funds for major infrastructural projects from several lending institutions.

The multilateral approach of lending goes a long way in ensuring that there is a chance for considerable negotiation and flexibility in terms of payment.

China’s interest and budget rates on their loans are incredibly high, which is why borrowing from this Asian country has been described as punitive.

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The Institute of Economic Affairs (IEA) shared an Analysis of Kenya’s borrowing trend which showed that Kenya is heavily indebted to China. The case has raised concerns as to what will happen should the country defaults and the lender take critical measures.

IEA Program Officer, Noah Wamalwa, noted that the rate at which the country is borrowing from China will put Kenya at risk as the top lender depends less on governance.

“Kenya is borrowing too much from China despite having other channels of accessing loans. China is also quite expensive in terms of interest rates while the multi-laterals open room for negotiation,” said Wamalwa.

John Mutua, the IEA Program Coordinator, however, stated that although no poll has been conducted yet, it is highly recommended that the government keep an eye on the movement of debt.

“So far this is an observation we have made, and we think and also the borrowing from country to country could be as a result of Kenya being ranked as a lower middle-income country,” Mutua said.

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Kenya’s debt by September 2018, was 5.15 trillion shillings. Domestic debt accounted for 2.54 trillion shillings while the external debt amounted to 2.61 trillion shillings.

The report by IEA shows that China is Kenya’s top creditor at 70.6 percent followed by Japan at 11.7 percent. France comes third at 7 percent.

President Uhuru is currently out of the country to sign another deal for a loan worth 368 billion shillings for the extension of the Standard Gauge Railway.

Upon agreement, the total debt of the project will hit 845 billion shillings.

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Meanwhile, the report, based on stats from the National Treasury showed that the Energy, Infrastructure, and ICT sectors are taking a huge chunk of the 2018/2019 external loans.

Nonetheless, Kenya’s Debt service is expected to hit 34.1 percent from the previous financial year. Currently, 30 percent of revenue collected by the Kenya Revenue Authority is used to service debt.