Kenya's problems with ballooning public debt became clear after the country defaulted on payment of Chinese loans for the construction of the Standard Gauge Railway (SGR).
Citing Treasury documents, Business Daily reports that Chinese lenders fined Kenya Sh1.312 billion ($10.8 million) for loan defaults in the financial year ended June.
“This (Ksh1.312 billion/ $10.8 million) relates to the cost of default on interest at one percent of the due amount,” disclosure documents by Treasury state.
Kenya borrowed over Sh500 billion from Chinese lenders, led by the Export-Import Bank of China, to fund the construction of the SGR from Mombasa to Naivasha via Nairobi.
But due to insufficient revenue from the passenger and cargo services offered on the track, which totaled Sh15 billion in the year ending June against operation costs of Sh18.5 billion, taxpayers have been forced to bear the cost of the SGR loans.
In the year ended June, SGR reported an operating loss of Sh3.4 billion and wired Sh22.7 billion in loan repayments, according to Business Daily.
In the year under review, Kenya had requested a six-month extension of the debt repayment moratorium from bilateral lenders, including China, until December 2021, but Chinese lenders led by the Exim Bank of China rejected the request, leading to a standoff that delayed disbursements to projects funded through Chinese loans.
Kenya was then forced to drop its push for a debt repayment holiday to avoid straining relations with China, the country’s biggest bilateral creditor after World Bank.
In January last year, China deferred the debt repayments, a move that helped Kenya to retain Sh27 billion ($223 million) that was due for six months ending June 2021.
Repayment of the SGR loan started in January 2020 following the lapse of a five-year grace period granted to Kenya by China.