- Delayed payments from banks like Exim Bank of China are creating cash crunch for Chinese-funded projects in Kenya threatening further delay in completion.
- The reason behind the crisis is, China has frozen disbursements of active loans to Kenyan projects due to its differences over Kenya’s proposal to extend the debt repayment holiday to December.
Delayed payments from banks like Exim Bank of China are creating a cash crunch for
Chinese-funded projects in Kenya threatening further delay in completion. The reason behind the crisis is, China has frozen disbursements of active loans to Kenyan projects due to its differences over Kenya’s proposal to extend debt repayment holiday to December.
The impact of COVID 19 left gaping holes in Kenya’s tax revenue collection. Most of the debts were falling due, in Jan 2021. Kenya, therefore, sought deals to suspend debt service with the rich nations under the Paris Club and other creditors, including China.
In January, Kenya was given a six-month debt repayments relief until December by China and other rich countries under the Debt Service Suspension Initiative (DSSI). Accordingly, payments of $304.77 million in principal and interest due between January and June were rescheduled to the next four years with a one-year grace period by the G20 countries.
Though China is a G20 member and a signatory to the deal, it sought to negotiate its debt relief deals with Kenya separately. It agreed to apply the same terms as the G20 countries while reserving the right on size and which loans will attract the moratorium as a major chunk of its loans to Kenya has been made on a commercial basis. These came from government agencies, quasi-public corporations, and state-owned banks, such as China Development Bank and Exim Bank of China. According to the World Bank estimates, Kenya could save $517.8 million from China between January and June under the DSSI deal in principal and interest payment freeze. But China announced that it is prepared to grant Kenya a $240.85 million relief.
China has lent $7.02 billion as of April 2021 to build rail lines, roads, and other infrastructure projects in the past decade. Apparently, Chinese lenders, especially Exim Bank, are uncomfortable with the terms of the Kenyan proposal for extension of the debt service suspension leading to delays in payment to contractors working on Chinese projects. According to sources, Chinese banks are not settling invoices because of the moratorium.
