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Kenya Suspends Push for China’s Debt Repayment Holiday to December    

BY Soko Directory Team · August 2, 2021 12:08 pm

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Kenya’s foreign exchange reserves dropped by 35.2 billion shillings between July 15 and July 21, a figure the World Bank says was largely a result of Kenya’s major debts led by loans linked to SGR.

Kenya has dropped its request to the Chinese lenders to push the debt repayment holiday to December amidst opposition from banks.

According to the Treasury, the government has chosen to suspend the extension beyond June confident that it will fully pay the Exim Bank of China.

The move follows resistance from the Chinese lender who recently froze disbursements to local projects. It was also effected for the fear of straining relationships with China, the country’s biggest foreign creditor.

Exim Bank, which funded the construction of the Standard gauge Railway (SGR), was concerned with the country’s push for the extension of debt service suspension with rich nations, prompting delays in disbursements to projects funded by Chinese financiers.

The funding hitch was acknowledged by the Chinese embassy in Nairobi claiming that the matter was under review by the two countries.

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“There is no request to the Chinese government for an extension of the moratorium on debt. Kenya is servicing its debts with the Exim Bank in line with the DSSI agreement,” Treasury’s PS Julius Muia said in a statement to Business Daily.

Kenya’s foreign exchange reserves dropped by 35.2 billion shillings between July 15 and July 21, a figure the World Bank says was largely a result of Kenya’s major debts led by loans linked to SGR.

In June, Chinese-funded projects faced a cash deficit with contractors reporting delayed payments from banks like Exim Bank of China.

Various executives at state-owned firms highlighted that the Chinese projects risked delays due to the funding hitch.

Payment to contractors working on Chinese projects and paid under direct method have been delayed since June. Reports indicate that the Chinese banks are not settling invoices because of the state moratorium.

For the past decade, Beijing, as at April 2021 has lent Kenya 758 billion shillings to build rail lines, roads, and other infrastructure projects.

In January, China and other rich countries under the Debt Service Suspension Initiative (DSSI) gave Kenya a six-month debt repayments relief.

Consequently, the G20 countries, including Belgium, Canada, Denmark, France Germany, Italy, Japan, Republic of Korea, Spain, and the USA, rescheduled payments of 32.9 billion shillings in principal and interest due between January and June to the next four years with a one-year grace period.

Kenya had sought an extension of the debt relief from G20 countries to December, saving an additional 39 billion shillings, according to the Meanwhile, the International Monetary Fund (IMF).

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Although China is a G20 member and a signatory to the deal, a large chunk of its loans to Kenya have been conducted 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.

While the lender has sought to negotiate its debt relief deals separately, it says it will still apply the same terms as the G20 countries while reserving the right on size and which loans will attract the moratorium.

According to the World Bank, Kenya could save 55.9 billion shillings from China between January and June under the DSSI deal in principal and interest payment freeze.

However, China announced that Kenya would be granted a 26 billion shillings relief.

A parliamentary disclosure indicated a portion of the relief came from the SGR financier, China Exim bank.

Despite these recent developments, the impact of the Covid-19 pandemic continues to batter Kenya’s tax revenue collection as households grapple with rising costs of living.

Article first published by Business Daily

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