China's debt-trap diplomacy: Kenya offered 'debt repayment holiday' for 6 months worth $245 million

Beijing, ChinaUpdated: Feb 16, 2021, 06:01 PM IST

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In yet another example of China`s debt-trap diplomacy, Kenya has been roped in a deal with a six-month debt repayment holiday worth USD 245 million

In yet another example of China`s debt-trap diplomacy, Kenya has been roped in a deal with a six-month debt repayment holiday worth USD 245 million. The deal was struck a week after the Paris club of creditors, an informal group of creditors offered the same debt-service suspension worth USD 300 million until the end of June 2021.

The African nation has been struggling to meet the repayments, as some of the projects, including the Standard Gauge Railway - built as part of Beijing`s Belt and Road Initiative, are not generating enough income to pay for themselves, South China Morning Post reported. This comes after Kenya was set to make its first repayment on a USD 1.48 billion loans from the Export-Import Bank of China (Exim Bank) that was used to build a railway line from the capital Nairobi to the town of Naivasha in the Central Rift Valley.

According to the rescheduling deal, Kenya will have the next six years to make payments on the suspended debt service costs including a one-year grace period after June 2021. It also obtained six months of debt-service suspension of USD 300 million from Paris Club creditors until the end of June 2021.The Kenyan Finance Ministry said, Kenya, however, will not seek similar suspensions from either multilateral or commercial lenders to safeguard its sovereign rating and its future access to international financial markets.

Kenya`s National Treasury Secretary Ukur Yatani said the deal with Beijing would give the country "the opportunity and a break on the kind of liquidity that we desire", South China Morning Post reported."We can now use that money to honour our obligations, including continuing to finance the national government and county governments," SCMP quoted Yatani as saying."We are happy to get the feedback that we don`t need to pay now," he said.But critics accuse President Uhuru Kenyatta`s government of saddling future generations with unbearable debt burdens by borrowing more funds from China. The government says borrowing to build the infrastructure will spur economic development.

Citing the National Treasury`s loan register, SCMP reported that Nairobi was supposed to make 30 payments to Exim Bank between Thursday and July 21, 2035. The interest rate had been set at 3 per cent above the benchmark London interbank offered rate.

Repayments on a separate loan of USD 1.6 billion from Exim Bank that Kenya used to build the first phase of the Mombasa-Nairobi Standard Gauge Railway will become due in July.

Also, repayments on a 50 million yuan (USD 7.7 million) loan for "economic and technical cooperation" are due to begin on April 1, and in September on a 660 million yuan loan used to upgrade Nairobi`s electricity network, SCMP reported. Kenya was due to pay China about USD 499 million by the end of June, according to the World Bank Debtor Reporting System.

Kenya has joined several other African governments seeking China "debt-trap diplomacy."China`s foreign ministry said this month that Beijing had signed payment suspension agreements with 12 African countries and provided waivers on mature interest-free loans for 15 African countries, SCMP reported. Meanwhile, China is Kenya`s largest individual lender having advanced about USD 6.7 billion worth of finance to build roads, railways, ports and other infrastructure as of the end of September