10 September 2018

Kenya: Did Trump and Uhuru Discuss China's Debt to Kenya?

A few weeks before President Uhuru Kenyatta traveled for a meeting with US president Donald Trump in Washington, sixteen US senators had written to the US Secretary of Treasury and US Secretary to the Department of State asking them to caution them against US tax payers money not being used by IMF to bail out countries indebted to China.

The letter from the senators in a bipartisan approach to Secretary of State Michael Pompeo and Treasury Secretary Steve Mnuchin mentions Pakistan, Sri Lanka and Djibouti among the countries that have accepted billions of dollars in loans from China but are unable to repay.

"We write to express our concern over bailout requests to the IMF by countries who have accepted predatory Chinese infrastructure financing," the 16 senators said. The Centre for Global Development has estimated that of the 68 countries currently hosting Bridge and Road Initiative (BRI) funding protects, 23 are at risk of debt distress, and in eight of those countries, future BRI-related financing raises serious concerns about sovereign debt sustainability.

The letter continues " As the largest contributor to the IMF, how can the United States use its influence to ensure that bailout terms prevent the continuation of ongoing BRI project, or the start of new BRI project? How can the United States work with allies and partners to educate countries about the risks of Chinese infrastructure loans? How can the United States work with allies and partners to assist countries struggling to repay duets due to BRI? How can the United States work with allies and partners to present an alternative to developing nations regarding investment and infrastructure funding?"

Last year, the Sri Lankan government, unable to repay over $1 billion of Chinese debt for construction of the Hambantota Port, granted a Chinese state company a 99-year lease on the facility.

Kenya was named among the 23 countries the Centre for Global Development released in March 2018, although the senators letter did not mention the country to be at high risk. Kenya's public debt load recently surpassed the 5 trillion shillings mark ($50 billion), with China now by far Kenya's largest lender, accounting for 72% of bilateral debt.

The CGDev report singles out Ethiopia as a country likely to shield itself from the big debts. "For example, China has played a leading role in financing Ethiopia's investment program, providing 30 percent of total new public external debt over the past five years, and 90 percent of new bilateral debt. Nonetheless, with one of the

most rapidly growing economies in the world, we expect Ethiopia will remain within prudent borrowing limits over the next several years. "

Later, Secretary Pompeo was quoted echoing the US worry over attempt by IMF to bail out some countries from Chinese loans.

So when President Kenyatta walked into White House, many of the discussions brought into public attention were on trade and security but there was no mention of Kenya's debt to China. However, US being wary of the growing trend of China loans increasing this matter must have risen in one way on another.

This must prompted Kenya to change tact in a meeting with China the following week when Kenya proposed a mix of long term low interest grants coupled with short term loans to fund the infrastructural projects in the country.

Kenya

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