Kenya's Rising Debt Could Benefit From a Return to Multi-Laterals

President Uhuru Kenyatta (left) greets Chinese President Xi Jinping at the Great Hall of the People in Beijing on April 25, 2019 ahead of the second Belt and Road Forum for International Cooperation.

Nairobi — The Kenya Government should consider the multi-lateral approach of borrowing money since it allows room for renegotiation and flexibility.

Borrowing from China has been described as punitive as they use budget rates and their interest rates are also considered high.

According to the Institute of Economic Affairs (IEA) who shared an Analysis of borrowing trends in Kenya at a public forum in Nairobi; Kenya is heavily indebted to China and the lender could take critical measures in case the country defaults.

Noah Wamalwa, Program Officer IEA said the rate at which the country is borrowing from China will put the country 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.

IEA Programme Coordinator, John Mutua however said they have not conducted a poll yet, but it is critical for the government to 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," he said.

By September 2018, the country's debt stood at Sh5.15 trillion with the domestic debt at Sh2.54 trillion and the external debt amounting to Sh2.61 trillion.

According to the IEA report, China is Kenya's top creditor at 70.6 per cent; Japan comes second at 11.7 per cent while France is the third top creditor to Kenya at 7 per cent.

The recent deal yet to see light of the day between Kenya and China is a Sh368 billion loan for the extension of the Standard Gauge Railway.

This has led to Kenya's top leadership - President Uhuru Kenyatta and Opposition party leader Raila Odinga fly to China seeking assistance in seeing the Naivasha-Kisumu leg of the Standard Gauge Railway come to fruition.

Should the two governments agree, the total debt of the project will hit Sh845 billion.

The organization also shared a report from the National Treasury which showed Energy, Infrastructure and ICT sectors taking the huge piece of the cake from the 2018/2019 external loans.

Kenya's Debt service is expected to increase by 34.1% from the previous financial year.

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