Of the external debt, about Sh400 billion which translates to 6 per cent of the GDP was obtained from China – making it Kenya’s single largest external creditor overtaking Japan, World Bank’s International Development Association (IDA) and the African Development Bank.
Loans from China are mainly used to fund the government’s mega infrastructure projects predominantly the first phase of the standard gauge railway which was constructed at a cost of Sh327 billion.
Kenya’s preference for Chinese loans has been attributed to minimal terms and conditions unlike western based funding which is accompanied by tough conditions focusing on accountability, good governance and sustainability.
The World Bank and the IMF have both expressed concern over the rapid rise in borrowing from China whose loans attract higher interest rates compared to those from other creditors, therefore coming at an amplified cost to the taxpayer.
For instance, in the third quarter of 2016, Kenya paid Sh6.42 billion to China – a principal of Sh1.12 billion and interest amounting to Sh5.3 billion, while it paid Sh4.81 billion to IDA yet China had given Kenya Sh317 billion as at August 2016 while IDA’s loan stood at Sh503 billion.
Despite the warnings, there is still no let-up in Kenya’s appetite for Beijing loans. The government is scheduled to negotiate for a new loan in the coming weeks which will be used for the construction of the second phase of the standard gauge railway from Naivasha via Kisumu to Malaba at a cost of Sh549 billion.
For most taxpayers the question remains when the heavy borrowing will start bearing fruits in relation to economic growth and job creation.
It remains to be seen whether the country can generate the required traffic in terms of imports and exports to pay for the port, road, railway and pipeline ventures it has heavily invested in.