Kenya to pay China Sh87 billion for the SGR in January

2 minutes

Kenya was expected to pay China around US$536. 9 million (Sh87.36 billion) by the end of this month, with a big chunk of the repayment being for loans borrowed to build the Standard Gauge Railway (SGR), a World Bank debt tracker shows.

The debt repayment to the Exim Bank of China piles pressure on the dwindling foreign exchange (forex) reserves, which have been aggravated by expensive imports and poor export earnings.

Kenya, which is expected to retire a US$2 billion Eurobond it borrowed in 2014, has been building up its stockpile of forex reserves, mostly through inflows from multilateral and commercial lenders.

The payment, mostly for the three SGR loans, comes a month after the National Treasury paid interest of US$68.7 million (Sh10.8 billion) due on the debut Eurobond maturing in July.

Principal payments amounted to US$289.9 million (Sh47.17 billion) with the remaining US$247 million (Sh40.19 billion) being interest payments.

The SGR repayments to the Exim Bank of China are made semi-annually—in January and July—with the last payment expected to be made in July 2035.

The SGR is Kenya’s largest project with the country chalking up US$5.08 billion (Sh831.6 billion) in loans to construct the modern railway that runs from the port city of Mombasa to Naivasha.

Kenya contracted three loans for the SGR, with two being for the construction of the first leg of the modern railway from Mombasa to Nairobi.

The first freight train of the Nairobi-Naivasha Standard Gauge Railway (SGR) arrives at the Naivasha Inland Container Depot in Kenya, on Dec. 17, 2019. /Xinhua

The two loans for the Mombasa-Nairobi phase of the SGR which stood at $1.6 billion (Sh261.6 billion) and $2 billion (Sh327.6 billion) respectively were signed in May 2014 and had a grace period of seven and five years respectively.

The Nairobi-Naivasha loan of US$1.5 billion (Sh242.4 billion) had a grace period of five years, having been signed in December 2015.

All these are to be repaid semi-annually on January 21 and July 21, with the interest rate calculated above the six-month London Interbank Offered Rate (Libor) rate. Libor is the benchmark interest rate at which major global banks lend to one another in the international inter-bank market for short-term loans.

Currently, the six-month Libor rate for dollars, which ended in June last year, is estimated at 5.6 per cent. The $2 billion loan was to be repaid at an interest rate of 3.6 per cent above the six-month Libor, which puts its interest rate at 9.2 per cent.

Other than the Chinese loans, Kenya has also contracted a lot of sovereign loans such as the dollar-denominated Eurobonds aggravating the country’s debt vulnerabilities. 

High interest rates on these commercial loans have pushed Kenya’s risk to debt distress. A big chunk of the taxes collected have been used to pay these interests, leaving so little for other critical public services such as health and education.

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