Kenya will have to pay $10 million to China as loan default amid its failure to oblige the repayment of over $500 billion borrowed for the construction of the Mombasa-Naivasha Standard Gauge Railway (SGR).
According to Treasury documents as reported by Business Daily, the Export-Import Bank of China penalised Kenya 1.3 billion ($10 million) in the fiscal year that ended in June for failing to repay its loan in accordance with the terms of the agreement.
Revenues generated from the cargo and passenger services are still not enough to meet the cost of the operations, which totaled Ksh18.5 billion ($152.8 million) versus Ksh15 billion ($123.9 million) in sales, making taxpayers suffer a heavy burden.
According to the reporting records obtained by the Business Daily, “This (Ksh1.312 billion/ $10.8 million) relates to the cost of default on interest at one percent of the due amount.”
SGR lost Ksh3.4 billion ($28 million) in operations and wired Ksh22.7 billion ($187.6 million) in loan repayments in the financial year to June.
The fallback occurred a year after Kenya requested a six-month extension of the debt repayment moratorium from bilateral lenders, as well as China, to December 2021, saving it from committing billions to Chinese lenders.
Exim Bank of China in particular, rejected Kenya’s request for a debt repayment vacation, and as a result, payments to projects receiving Chinese financing were delayed.
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Last January, China postponed debt repayment, allowing Kenya to keep Ksh27 billion ($223 million) due for the six months ending June 2021.
To avoid straining relations with Kenya’s largest international creditor, Nairobi decided to drop its push for an extension of the debt repayment holiday due to opposition from Chinese lenders.
Though repayment of the SGR loan began in 2020, its late payment highlights Kenya’s financial distress in the face of rapidly maturing debts that have eaten deep into tax revenues and squeezed funds for development projects.
