Kenya Denies It Defaulted on Debt to China

The Kenyan government has denied media reports that Chinese banks have fined the country $11 million for failing to pay back loans used to finance a major railway. Kenya’s ministry of finance, Ukur Yatani, said Thursday the country never defaulted on any of its creditors.

The East African nation borrowed $4 billion to construct the Standard Gauge Railway from the port of Mombasa to Naivasha town, some 100 kilometers from the capital.  

Senator Samson Cherargei, a member of the ruling United Democratic Alliance party, told VOA the government is in a solid position to pay its debt of 10 trillion Kenyan shillings, equal to 82 billion U.S. dollars.  

“I am confident the 10 trillion debt that is facing the republic of Kenya is still sustainable and the government can still pay and as parliament, we have ensured that we receive a regular medium-term update in terms of the government payment of the public debt. So, I have a lot of confidence that the government will be able to pay its public debt,” Cherargei said.

In June, the previous parliament increased the public debt limit to $83 billion to help the incoming government borrow more to help it run its programs.  

Samuel Nyandemo, who teaches economics at the University of Nairobi, said Kenya cannot sustain itself without borrowing but must make good use of the money it borrows locally and internationally. 

 

“I don’t think Kenya has reached where it can sustain itself. The best they can do is minimize borrowing, borrow where necessary and whatever they borrow, they put it into productive use,” he said.  

The Kenyan government is blamed for over-borrowing in the past and overvaluing major projects, leaving the country with gigantic loans to pay back. 

China accounts for a third of Kenya’s external debt.  

New President William Ruto insists on reducing foreign borrowing and finding alternatives to finance government projects.

Nyandemo said Kenyan officials will need to speak to China and agree on ways to pay back the money in coming years. 

 

“Those loans are quite huge. The first attempt the new government will do is either renegotiate these loans on new terms which will be a bit difficult and most of them are commercial loans and commercial loans are always expensive,” Nyandemo said. “I think the best the new government can do is to go for concessionary loans and scale down the borrowing proportion it borrows, put it into productive use and cut down public expenditure.” 

Last month, Ruto ordered the treasury to cut $2.5 billion in government spending.  

Sabina Chege, an opposition member of parliament, said the government, through the Kenya Revenue Authority, or KRA, needs to raise money through taxation and fighting corruption. 

 

“The Kenyatta government emphasized on paying taxes and there was the second issue of fighting corruption, so there was a lot of savings from the government,” she said. “What we are seeing currently with the current government is that people who are politically correct with the current regime, even the graft cases, are being dropped. KRA officials are currently afraid of following any individual because they don’t know whether they will be touching the wrong person. But the performance has been going down.” 

The Kenyan government has challenged the Kenya Revenue Authority to collect $25 billion by the end of the year, which will help support development programs. 

 

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