Kenya opts for IMF and World Bank as China tightens grip on lending for African nations

NAIROBI - Kenya’s President William Ruto’s administration will only receive $ 12.7 million this financial year. This will be the smallest amount to receive from the Asian economic giant for over a decade.

China embraced a new cautious approach when lending to some African states who are facing debt stress. Documents from the National Treasury show that Chinese funding for the year starting July will fall to $12.7 million from $216.5 million in the current fiscal year and $522.5 million in 2017.

This new fall in Chinese loans has prompted President Ruto to turn to the World Bank and the International Monetary Fund (IMF) for loans to help in the implementation of the political manifesto.

The IMF and World Bank Group will now have a firm grip on Kenya's economy.

For more than half a decade, Kenya has been a major beneficiary of China’s loans for the development of mega infrastructure such as roads and a modern railway over the last decade, making Beijing the largest bilateral creditor since 2015.

In 2002 when the late President Mwai Kibaki turned East for bilateral trade ties, the Chinese government built the Thika Super Highway.
While under former president Uhuru Kenyatta the Standard Gauge Railway (SGR) project was undertaken by Beijing.

China’s loan commitment for the fiscal year starting July is far less than new debts expected from World Bank and other European bilateral lenders like France and Germany, which have intensified the fight for major deals in Kenya.

The Ruto administration, which took over last September, has committed to reducing its rate of borrowing, with foreign loans committed for the new budget falling to $2.3 billion from the current $2.4 billion.

Public debt surged under the administration of President Ruto’s predecessor who presided over a massive infrastructure construction drive.

Kenya’s debt increased more than four-fold to $63.6 billion during Mr. Kenyatta’s 10-year era that started in 2013. The surge in liabilities left the country at high risk of debt distress, according to the IMF.

Kenya has insisted it cannot default on its debt repayment obligations. The IMF in 2020 listed more than 20 African countries, including Kenya, as being in or at high risk of debt distress.

In response, lenders, including China Eximbank and China Development Bank, China’s two main policy banks, have adopted increasingly hard-line lending terms.

In 2021, while addressing African heads of state in Senegal via a video speech at the triennial Forum of China-Africa Cooperation held, Chinese President Xi Jinping reinforced that the country would cut the headline amount of money it supplies to Africa by a third to $40 billion.

“China is moving away from this high-volume, high-risk paradigm into one where deals are struck on their own merit, at a smaller and more manageable scale than before,” an analysis of China’s lending to Africa by Chatham House, a UK think-tank, said.

Lower funding to Africa, local analysts say, could be a pointer that Beijing is starting to see signs of reduced benefits from the cash it commits on the continent.

Chinese lenders have traditionally shown flexibility on loan terms for projects in Africa, seen as politically important for Beijing.

They include the $3.5 billion SGR, a $398 million oil terminal at the Mombasa port, and road projects such as the Southern and Eastern Bypass in Nairobi.

Treasury data show debt contracted from China has grown by a single digit in the two financial years to June 2021 compared with double-digit growth previously.

GAROWE ONLINE