China has frozen the disbursements of loans to Kenya, citing discomfort over Kenya’s request to extend the debt repayment holiday to December from an earlier deadline of June.
Consequently, Chinese-funded projects face a cash crunch, with contractors reporting delayed payments from banks like Exim Bank.
Business Daily reports that payment to contractors working on Chinese projects, and paid under the direct method, have delayed since last month. The direct method involves Kenyan firms with Chinese loans sending notices for supplier payments to Chinese banks through the Treasury.
In January this year, China and other rich countries under the Debt Service Suspension Initiative (DSSI) gave Kenya a six-month debt repayments relief.
Now, Kenya is seeking deals to suspend debt service with the rich nations under the Paris Club and other creditors, including China, covering the six months to the end of December 2021.
The G20 countries, including Belgium, Canada, Denmark, France, Germany, Italy, Japan, Republic of Korea, Spain and the USA, rescheduled payments of KSh32.9 billion in principal and interest due between January and June to the next four years with a one year grace period.
While China is a G20 member and a signatory to the deal, a large proportion of its loans to Kenya has been made on a commercial basis by government agencies, quasi-public corporations and by state-owned banks, such as China Development Bank and Exim Bank of China. Thus, China has sought to negotiate its debt relief deals separately, but applying the same terms as the G20 countries while reserving the right on size and which loans will attract the moratorium.
The country is one of Kenya’s biggest foreign creditors, having lent KSh758 billion as of April 2021 to build rail lines, roads and other infrastructure projects in the past decade.