Beijing remained the biggest gainer from Kenya’s external debt repayment in the six months to December 2018 compared to a similar period of the previous year, data by the Treasury showed, signalling the rising concessional and semi-concessional loans China has been injecting into Kenya’s infrastructure development.
India and South Korea also posted significant gains in the value of debt repayment by Kenya over the period — defying a general trend of a dip in the value of repayments to other traditional key lenders to Nairobi.
China gobbled up more than a fifth of the overall amount Nairobi spent on servicing its external debt in six months through December, the Treasury statistics show, signalling the cost of concessional and semi-concessional loans China has been injecting into Kenya’s infrastructure development.
Kenya spent nearly Sh15.43 billion on servicing loans from China in the July-December 2018 period, the Treasury says in its latest report, an equivalent of 22.05 percent of the Sh69.45 billion spend on total foreign debt.
Repayments to China have more than doubled from Sh6.3 billion, or 15.41 percent of the total spend on servicing the external debt, in a similar period in 2016 and Sh12.72 billion, or 18.53 percent of the total foreign debt costs, in 2017.
The amount paid to China, Kenya’s largest lender, which comprised Sh12.80 billion interest and Sh2.63 billion principal sum, also accounted for 60.79 percent of the Sh25.37 billion costs on the bilateral debt.
That made the world’s second-largest economy the largest to a single creditor in the review period.
The value of Kenya’s debt repayment to India jumped 719 percent to Sh368 million in the six months through December 2018 compared to the previous year while debt repayment to South Korea was up 117 per cent to 207.8 million over a similar window.
World Bank Group’s International Development Association (IDA), the country’s largest multilateral lender, pocketed Sh7.42 billion in debt servicing costs compared to Sh8.13 billion in 2017 and Sh7.28 billion in 2016.
Foreign commercial banks, whose debt stock surged to Sh938.15 billion last December from Sh712.27 billion the year before and Sh458.12 billion in December 2016, were paid Sh33.17 billion in debt costs a slight drop from Sh34.56 billion a year earlier, but more than Sh14.49 billion remitted in 2016.
Kenya’s debt obligations to France rose to Sh2.93 billion from Sh2.73 billion in 2017 and Sh3.13 billion in 2016, while Japan got Sh2.83 billion compared to Sh3.29 billion and Sh3.44 billion in the respective review period in 2017 and 2016.
Treasury PS Kamau Thugge disclosed the data in the latest quarterly Economic and Budgetary Review report for the half-year period ended last December.
President Uhuru Kenyatta’s administration has largely contracted a mix of semi-concessional and commercial debt from China as well as international capital markets (Eurobond) since 2014 to build much-needed roads, bridges, power plants and a modern railway line (the standard gauge railway).
This started after Kenya became a lower middle-income economy, limiting its access to highly concessional loans from development lenders such as the IDA.
Total public debt crossed Sh5.27 trillion last December, the Treasury statistics show, up from Sh4.57 trillion a year earlier and Sh3.83 trillion in December 2016.
The bulk of the debt accumulated in recent years has been foreign loans, which made up 51.66 percent of the total debt last December, or Sh2.72 trillion.
“We note that between FY2005/06 and FY2012/13, debt accumulation averaged Sh109.4 billion per fiscal year but has since surged to an average of Sh509.6 billion per fiscal year between FY2013/14 andFY2017/18. This has generated discourse on debt and its sustainability,” said analysts at Genghis Capital in a report on Friday.
Treasury secretary Henry Rotich has budgeted for nearly Sh870.62 billion to be paid to creditors this financial year ending June 2019. This is more than half the revised Sh1.61 trillion in projected tax receipts, assuming there will be no debt rollover.
That comprises Sh505.96 billion in domestic obligations and Sh364.66 billion to foreign creditors.
Interest payments to domestic investors will gobble up nearly Sh285.61 billion, while another Sh220.35 billion will be spent on redemptions (principal sums) of the maturing debt contracted locally.
About Sh250.28 billion will go into the payment of principal amounts for foreign loans, while interest will eat up Sh114.37 billion, according to 2018 Medium Term Debt Management Strategy.
“Kenya will face elevated debt service obligations in 2019, as the initial five-year grace period extended by the Export-Import Bank of China for the standard gauge railway ends in May. Debt redemptions related to other infrastructure projects are also likely to rise,” says London-based Standard Chartered Bank chief economist for Africa Razia Khan in her latest note on Kenya.
Debt contracted from Beijing climbed to $6.20 billion (Sh626.2 billion) in December 2018 from $5.30 billion (Sh535.30 billion) a year earlier and $4.09 billion (Sh413.09 billion) in December 2019, the official data indicate, an average growth of nearly $1.06 billion (Sh107.06 billion) every year in the last two years.
Loans from China largely have concessional and semi-concessional terms.
The spike in debt procured from China underlines the active participation of East Asia’s powerhouse in Kenya’s infrastructure development-led growth strategy.
China’s influence on the country’s infrastructure development started in earnest with the construction of the Thika Superhighway between January 2009 and November 2012 at a cost of nearly Sh32 billion during the last term of President Mwai Kibaki.
The deal by Exim Bank of China to fund 90 percent of the $3.6 billion (Sh363.60 billion), 485-kilometre Mombasa-Nairobi standard gauge railway line — cash which was disbursed in phases — saw Beijing overtake Tokyo as Kenya largest bilateral lender.
There has been no looking back ever since with China’s State-run firms bagging the lion’s share of Kenya’s mega construction projects such as roads and bridges.
“We decry the low yield in public big-ticket capital expenditures, which has further crowded out investment to the more productive sectors,” Genghis Capital analysts say, citing the Mombasa-Nairobi standard gauge railway line, which reportedly posted a loss of nearly Sh10 billion in 2018 — its first year of full operations.
“Therefore, effective evaluation of the public projects, more so in the infrastructure sector, are welcome. We note strides have been made which will result in both Executive and Legislature reviewing and monitoring public projects.”
World Bank pushes G-20 to extend debt relief to 2021
World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.
“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.
He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.
The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.
People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.
For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.
Debt burdens, already unsustainable for many countries, are rising to crisis levels.
“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.
Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans
The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.
“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”
According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.
Tighter Reins on Platforms for Mobile Loans
The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.
Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.
Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.
Scope Markets Kenya customers to have instant access to global financial markets
NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options.
This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.
The Scope Markets app offers clients over 500 investment opportunities across global financial markets.
The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.
The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).
The platform also offers an enhanced client interface including catering for those who trade at night.
The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour; Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).
The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.
Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”
He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.