Kenya to Seek Help from IMF to Repay China’s Debt

Kenya is second-guessing to use funds from the International Monetary Fund (IMF) to repay Chinese loans after it dropped an earlier request to defer debt payments.

The Treasury says it could use its additional allocation of IMF reserves in Special Drawing Rights (SDR) assets, which can be converted to government-backed money, as one of the options to plug the budget hole.

Director-general for public debt management, Haron Sirima, said Kenya has a raft of options including “use of additional SDR allocation by the IMF” to fill the cash hole left.

Kenya had expected to extend debt repayment by another six months to December 2021. This would have saved Kenya from making payments of nearly Sh50 billion to Beijing lenders.

Chinese lenders, especially Exim Bank, were uncomfortable with Kenya’s push for the extension of the debt service. This prompted delays in disbursements to projects funded by Chinese financiers. Nairobi was forced to drop its push for the debt repayment holiday extension by China for fear of causing strained relations with Kenya’s biggest creditor.

Dr Sirima said the Treasury has other options which include seeking grants from development partners, changing the funding for “specific” capital projects to public–private partnerships (PPP) and tapping the IMF reserves.

The IMF is expected to play a role in shaping policy. This role would require the government to implement tough conditions across many sectors. The conditions are tied to the fund’s multi-billion shilling loan facilities to Kenya. Money is expected to flow straight into the budget to top up the public purse.

President Uhuru Kenyatta’s term has largely taken loans from China since 2014. The loans have been used to build roads, bridges, power plants and the standard gauge railway (SGR). This started after Kenya became a lower-middle-income economy. This then locked Kenya out of highly concessional loans from development lenders such as the World Bank.

This is like taking a loan to repay another loan from someone you already owe.