China fines Kenya Sh1.31bn over SGR loan default
China fines Kenya Sh1.31bn over loan default that was provided to build the standard gauge railway (SGR).
The Chinese banks fined Kenya Sh1.312 billion in the year ended June for loan defaults, according to Treasury documents, after Kenya defaulted on repayment of the Chinese loans provided to build the standard gauge railway (SGR).
To finance the building of the SGR from Mombasa to Naivasha, Kenya secured more than 500 billion shillings from Chinese lenders, led by the Export-Import Bank of China.
Due to insufficient earnings from the passenger and cargo services offered on the track—which totaled Sh18.5 billion in the fiscal year ending in June against sales of Sh15 billion—taxpayers have been compelled to bear the cost of the SGR loans.
“This (Sh1.312 billion) relates to the cost of default on interest at one percent of the due amount,” said the disclosure documents.
SGR posted an operating loss of Sh3.4 billion and wired Sh22.7 billion in loan repayments in the year to June.
Kenya has requested a six-month extension of the debt repayment moratorium from bilateral lenders, including China, until December 2021, in order to avoid committing billions of dollars to the Beijing lenders at the time of the default.
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.
In January of last year, China delayed the repayments, enabling Kenya to temporarily hold onto Sh27 billion that was owed for the six-month period ending in June 2021.
Nairobi was compelled to abandon its efforts to extend the debt repayment vacation due to resistance from Chinese lenders in order to prevent strained relations with Kenya’s largest bilateral borrower.
China, which accounted for about one-third of Kenya’s 2021-22 external debt service costs, is the nation’s biggest foreign creditor after the World Bank.
Kenya spent a total of Sh117.7 billion on Chinese debt in the period, of which about Sh24.7 billion is in interest payments and almost Sh93 billion in redemptions, according to budget documents.
Repayment of the SGR loan started in January 2020 after the lapse of a five-year grace period that Beijing had given Kenya.
The loan default underscores Kenya’s financial distress in the face of fast-maturing debts that have eaten deep into tax collections and squeezed funds for development projects.
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