World Bank loan of Sh581bn to Kenya now beats China loan of Sh557 billion ($5.5 billion) becoming Kenya’s biggest creditor.
China was on top of the World Bank at the end of December 2017 to become Kenya’s biggest creditor for the first time ever, mainly because of the huge China loan to finance the construction of the standard gauge railway (SGR Kenya).
As from June 2018, Kenya’s borrowing World Bank loan to the tune of Sh581 billion ($5.8 billion) set World Bank as the top lender to Kenya, the huge loan amount from both World Bank and China loan now accounts for about one fifth of Kenya’s total public debt burden that is way passed Sh5 trillion.
Treasury’s budget deficit of Sh596.6 billion for the fiscal year 2017/18 is what encouraged the concessional World Bank loan through International Development Association (IDA) part of the World Bank.
“We should look at the whole issue of public debt from the point of view of the fiscal deficit. If the planned deficit is over Sh500 billion, as indeed it was, then such money coming from the World Bank should not surprise us,” said Mr Kinuthia the International Budget Partnership (IBP) researcher.
Kenya’s GDP rose by more than a quarter following rebasing. Kenya loans currently amount to about 58 per cent of the GDP. The percentage is lower than expected because the nominal GDP was higher than was originally programmed for the end of June. GDP stood at Sh8.85 trillion, higher than the target of Sh8.68 trillion.
“Free cash to Kenya in the form of grants has reduced. We decided we wanted to rebase our economy and that cut us off this cash. We have to pay for it through higher debt servicing,” said Mr Kinuthia.
The buildup of China loan to fund the SGR Kenya project has caused unease among analysts and activists recently mainly because of the surge in the billions borrowed within a very short span of time, yet the full repayment details have not yet been disclosed.
“A middle-income country like Kenya should spend no more than 30 per cent of its ordinary revenue in repaying debt. A developed country like Canada or Norway can spend as much as 35 per cent, but Kenya should not exceed 30 per cent.
“The public debt to GDP ratio is just one measure, but the one of servicing to ordinary revenues should be given more weight,” Mr Kinuthia said.
The amount of interest free grant loans given to Kenya, has dropped significantly, leading the country to increase its commercial borrowing.