Kenya to ask China for more time on $5B in railway line loans

Bloomberg / David Herbling

10:38 JST, October 20, 2022

Kenya plans to ask China for a longer repayment period on $5 billion of loans it used to build a new railway line, Transport Secretary-designate Kipchumba Murkomen said.

Servicing the Export-Import Bank of China loans, which mature in 15 to 20 years, is choking the economy, Murkomen told lawmakers Wednesday at a confirmation hearing in the capital, Nairobi.

“If we can manage to renegotiate to 50 years, then it will ease the burden” and enable the government to use money for other parts of the economy, he said. “We are choked by loans.”

Kenya is at high risk of debt distress and reducing its vulnerability is a central goal of a 38-month International Monetary Fund-supported program announced earlier this year. The country’s debt stood at 8.58 trillion shillings ($70.8 billion) in June, equivalent to 67.8 percent of gross domestic product, according to the National Treasury.

The rail line, part of China’s Belt and Road Initiative, is Kenya’s biggest infrastructure project since the country gained independence from Britain in 1963. It links Nairobi with the port of Mombasa, East Africa’s largest harbor. Kenya Railways Corp. was scheduled to start operating the project in June, after taking over from Africa Star Railway Operation Co., a subsidiary of China Road and Bridge Corp., to reduce operating costs.

Murkomen said that the use of short-term capital to build long-term projects such as railways resulted in a funding mismatch. The railway has yet to break even, he said.

“It becomes impossible to be able to pay that loan from revenue that comes from the railways,” he said. “Even in 50 years, it will never break even.”

Many African countries watched debt restructuring talks between China and borrowers Angola and Zambia to gauge what may happen if they request similar treatment, according to Oyintarelado Moses, a data analyst at the Boston University’s Global China Initiative.

“African countries are not just grappling with Chinese debt repayment, because African countries overall owe more to private sector creditors than to China,” he said. They are “having to juggle debt repayment to all their creditors, including Chinese creditors.”

Of the $696 billion owed by African nations by the end of 2020, 35% was to private creditors excluding those in China, and 12% by both private and public Chinese lenders, according to UK-based Debt Justice, which lobbies for poor countries’ loans to be written off.

• Other highlights from the confirmation hearing:
• – Murkomen pledged to make public the contract for the railway project. A High Court judge has previously ordered the finance ministry to disclose the terms of the deal.
• – Kenya plans to scrap a fund it established to help finance the building of roads by private investors because the plan is too expensive.
• – The government plans to float a road bond to clear an estimated 140 billion shillings of pending bills owed to contractors.