China Shuns funding Kenya amid disagreements as MSMEs depend on them

Chinese lenders are walking away from funding Kenya, after the country showed signs of defiance from the agreements they had had earlier. In an expose done by a national business paper in the country, China has frozen disbursements of active loans to Kenyan projects in the wake of differences over Nairobi’s bid to extend debt repayment holiday to December. These has left many Chinese funded projects without any money to run their activities, with contractors reporting delayed payments from several funding arenas such as the Exim bank of China. Despite the tussles and dazzles, from critics and several organizations on the current state of the national debt, the government has been firm on borrowing with the aim of spurring economic growth.

China has frozen disbursements of active loans to Kenyan projects in the wake of differences over Nairobi’s bid to extend debt repayment holiday to December.

According to the Business daily, Sources familiar with the delay say the Chinese lenders, especially Exim Bank, are uncomfortable with the terms of the Kenyan request for extension of the debt service suspension beyond June.

In January this year, China postponed Kenyan debt repayments due over the next six months, a week after the Paris Club of creditors offered the East African nation similar relief. Kenya had been scheduled to pay 27 billion shillings ($245 million) to China from January through June. The Paris Club agreed to delay $300 million in payments by the government of East Africa’s biggest economy.

However in March this year, fears began spreading all over the maritime facilities, as China had interest in taking over the port of Mombasa. China was to seize the Port of Mombasa if the country defaults on loans procured to finance the loss-making Standard Gauge Railway (SGR).

As the fears continued to grow, the government through the treasury CS Ukur Yatani, suspended the fact that the port was to be absorbed by China. He said that Kenya did not offer the strategic national asset as collateral for the $3.2 billion loan sourced from the Export Import Bank of China (Exim China) to finance the SGR project.

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In trying to prove the Port of Mombasa is safe from claims by Chinese lenders, Yatani stated that all external loans from bilateral lenders have pari passu provisions in the respective agreements requiring equal treatment in the servicing of all debts. Pari-passu is a financing arrangement that gives multiple lenders equal claim to the assets used to secure a loan.


For this reason, the government of Kenya cannot and has not pledged public assets as security for a debt, because such an action would not only violate provisions in its existing loan agreements with other bilateral creditors, but more importantly because Kenya treats all creditors equally,” Yatani said.

China is one of Kenya’s biggest foreign creditors, having lent Sh758 billion as at April 2021 to build rail lines, roads and other infrastructure projects in the past decade.

According to the paper, Kenya’s Treasury officials denied delays in release of Chinese loans, saying the country had received positive response from all countries where they sought an extension of the debt repayment relief.

According to the 2021 Budget Policy Statement, Kenya’s public debt as of June 2020 stood at Sh7. 06 trillion, which is equivalent to 65 percent of GDP. In December 2020, the Treasury claimed that the figure was Sh7. 2 trillion, which was 65.6per cent of GDP. In a report released by the central bank the public debt had ballooned as by January this year up to Sh7.4 trillion.

While the tussles continue, many projects in Kenya including the Nairobi express way and the Dongo Kundu multibillion one have employees who have depended on them for shelter and survival. They are the micro, small and medium sized business people. The economic channeling from top cannot eliminate the small entity for the success of different projects.

As the country continues to argue with the lenders in an economic activity that they had already planted for the MSMEs is a losing factor for the nation. As contractors continue to complain of months gone unpaid, the investments will go down and the working power will be affected.

The government officials in the treasury led by Yatani have so far denied the lapse in performance claiming that they are still holding positive talks with the Chinese lenders. The Thika super highway project in Nairobi which was funded by the Chinese between January 2009 and November 2012 at a cost of nearly Sh32 billion during the last term of President Mwai Kibaki, opened more performance avenues for MSMEs at the economic bargain in the area can be witnessed in the last decade.

President Uhuru Kenyatta government has largely depended on funds from China to develop various projects under the big four agenda, something that saw China overtaking japan as the biggest lender in the country.

Mombasa, Kenya.

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