China has frozen the distribution of infrastructure loans to Kenya. This comes as a result of China’s Exim Bank citing displeasure of Kenya seeking to extend debt relief from June to December 2021. Kenya’s intention for an extension for relief was revealed by the International Monetary Fund (IMF).
In January 2021, it was agreed that Kenya would adhere to a 6-month debt relief period allowed by China and other G20 nations. This was approved and signed under the Debt Service Suspension Initiative (DSSI).
The initiative means that bilateral official creditors are, during a limited period, suspending debt service payments from lower-middle-income countries that put in a request.
Sources familiar with the delay say the Chinese lenders, especially Exim Bank, are uncomfortable with the terms of the Kenyan request for extension of the debt service suspension beyond June.
“Payment to contractors working on Chinese projects and paid under direct method have delayed since last month. We are told Chinese banks are not settling invoice because of the moratorium,” said a CEO of a State corporation who spoke on condition of anonymity.
Forged in December 2020, the plan is meant to cushion nations whose top priority would be to focus resources in combating the ongoing health pandemic. The framework’s purpose is to safeguard livelihoods of the world’s most vulnerable persons.
Kenya qualified for this privilege after the government illustrated diminishing effects of the current pandemic on collection of revenue.
Funds made available to local contractors were suddenly halted when Kenya sought to extend the above-stated debt period. As a consequence, Chinese-funded projects in Kenya face a possible lack of liquidity.
The direct method involves Kenyan firms with Chinese loans sending notices for supplier payments to Chinese banks through the Treasury.
China is one of Kenya’s biggest foreign creditors, having lent Sh758 billion as at April 2021 to build rail lines, roads and other infrastructure projects in the past decade.
Yesterday, the Chinese embassy in Nairobi acknowledged the funding hitch, adding that the matter was being addressed by officials of the two countries.
“To my knowledge, the relevant parties of the two sides are in close communication on specific issues under the DSSI framework,” said Huang Xueqing, the Chief of Information and Public Affairs section at the embassy, said in email response to the Business Daily questions on delayed release of loans.
“They are in communication with each other on this matter also under the framework of DSSI (Debt Service Suspension Initiative (DSSI).”
Kenya’s Treasury officials denied delays in release of Chinese loans, saying the country had received positive response from all countries where they sought an extension of the debt repayment relief.
“Not true,” Finance Cabinet Secretary Ukur Yatani said.
“I am not aware. All creditors have been very responsive,” Director of the Public Debt Management Office Haron Sirma said.
In January, China and other rich countries under the under the Debt Service Suspension Initiative (DSSI) gave Kenya a six-months debt repayments relief.
According to Business Daily, remissions made in the direct payment method to contractors working on Chinese projects have been stalled since last month. This method has forced Kenyan companies relying on Chinese loans to send notices for supplier payments to Chinese banks through the National Treasury.
The wealthy countries owning this infrastructural debt are Belgium, Canada, Denmark, France, Germany, Italy, Japan, Republic of Korea, Spain, and the USA. The DSSI (Debt Service Suspension Initiative) amended the payment period of Ksh 32.9B in principal and interest to be due between January and June. This loan is supposed to be serviced in the next four years with a one-year grace period.
Nonetheless, China is the biggest owner of this loan which was paid out by national banks: China Development Bank and Exim Bank of China. The communist republic has therefore taken to reviewing its terms with Kenya exclusively but following requirements of the Paris Club of international creditors.
However, Kenya’s Treasury CS Ukur Yatani and other Treasury officials have denied any slow-down in receiving and distributing loan monies from China. They asserted that the country had received affirmative responses from states where they sought an extension of the debt repayment relief