African Reserves Loans

China holds a key East African state, Kenya, in suspense …


(MENAFN – Colombo Gazette) In the Chinese mind, Africa is a backward continent that must be exploited for its natural resources and used as a platform to give Chinese companies the opportunity to invest and create more useful infrastructure to china as the host country. Kenya is a classic example of an African nation that has deeply indebted itself to China. Recently, it withdrew its request to China to extend the debt repayment holiday until December 2021. This came amid opposition from Chinese lenders who froze disbursements to local projects. Thus, Kenya was forced to drop its request for an extension of the debt repayment holiday, fearing a strain in relations with its largest foreign creditor.

The Kenyan Treasury said it decided not to seek an extension of debt relief beyond June 2021 and claimed Kenya was paying the Exim Bank of China in full, which financed the construction of the railway. standard gauge (SGR). Chinese lenders, especially Exim Bank, were uncomfortable with Kenya’s pressure to extend debt service suspension with developed countries. This has resulted in delays in disbursements for projects financed by Chinese financiers. The Chinese Embassy in Nairobi admitted there had been a funding problem, adding that the issue was being addressed by officials from both countries.

Data from the Central Bank of Kenya shows that foreign exchange reserves fell by 35.2 billion Kenyan shillings between July 15 and July 21. World Bank data shows that Kenya’s only major debt repayment in July 2021 was on RMS-linked loans, signaling the repayment of Chinese loans. China-funded projects faced a liquidity shortage in June 2021, with entrepreneurs reporting late payments from banks like Exim Bank of China. Amid news of Kenya’s inability to pay its SGR debt, reports also said that the Chinese operator of SGR demanded billions of Kenyan shillings in unpaid bills before handing the project over to Kenya entirely.

Relevantly, Africa Star Railway Operation Company Ltd (Afristar), the Chinese company hired to operate rail services, has made the discharge of its debts a prerequisite, before SGR’s operations can be transferred to Kenya in May 2022. The Kenyan parliament in 2020 revealed that Kenya had not paid 38 billion shillings to Afristar, which is owned by China Road and Bridge Corporation. Afristar was hired in May 2017 to operate passenger and freight trains on the SGR. The total amount Kenya borrowed from China to build the SGR is actually close to Ksh 420 billion, mainly for building the Nairobi to Mombasa railway line and for the purchase of engines and coaches. .

The SGR line started operations in 2017. Subsequently, it was connected to another new route to Naivasha, also financed by Chinese loans amounting to US $ 1.5 billion. China is one of Kenya’s largest foreign creditors, having lent
758 billion shillings in April 2021 to build railways, roads and other infrastructure projects over the past decade. SGR operating agreement requires Kenyan government to provide monthly fixed service

the payment, which is made quarterly in advance, at a rate of 28.8 million US dollars (3.12 billion Kenyan shillings). In addition to operating costs, Kenya is required to honor the repayment of the 324 billion Kenyan shillings it borrowed for the project from the Exim Bank of China (May 2014). She didn’t start repaying until 2020, after the five-year grace period had expired.

The terms and conditions of China’s loan agreements with developing countries are exceptionally secret. One aspect to note is that they require borrowers to prioritize repayment from Chinese state-owned banks, ahead of other creditors. Reuters previously revealed the number of such contracts with specific T&C. The Reuters article provides information on a dataset, compiled over three years by Aid Data, a U.S. research lab at the College of William & Mary, Virginia. The dataset includes 100 Chinese loan contracts with 24 low- and middle-income countries, a number of which are grappling with growing debt burdens amid the economic fallout from the Covid-19 pandemic. Part of China’s loans to Kenya have been made on a commercial basis by government agencies. Therefore, while China is a member of the G20 and a signatory to the agreement, it cannot apply the same conditions as the G20 countries, while reserving the right on the size and loans that will attract the moratorium. The challenge Kenya faces is that it must either settle the billions of shillings in unpaid bills or restructure the liabilities into debt that will be repaid over a longer period. Either way, it puts the nation even more in debt.

The dataset contains several unusual features, including confidentiality clauses that prevent borrowers from revealing loan terms, informal collateral agreements that benefit Chinese lenders over other creditors, and promises to keep debt out. collective restructuring. In January 2021, China and other wealthy countries under the Debt Service Suspension Initiative (DSSI) granted Kenya six-month debt relief.

Kenya had previously requested an extension of relief on public loan repayments under the G20 debt suspension initiative until December, from the original June deadline, saving $ 39 billion. additional Kenyan shillings ($ 361 million). The G20 countries have rescheduled payments of Ksh 32.9 billion in principal and interest due between January and June over the next four years with a one-year grace period.

Furthermore, the pressure to close the Afristar case comes during the Covid-19 pandemic which is hitting government revenues and forcing Kenya to look to the IMF and the World Bank for direct budget support. The predicament of the Kenyan government is a direct consequence of borrowing from China to build an expensive railway line, which it does not need and cannot afford. For China, this gave it a stake in the country’s infrastructure and boosted Kenya’s debt level. In both directions, only China benefits. This should be the lesson for the nations in Africa. (Economic times)

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