China's harsh stop to Kenya's lending.
The government in Beijing has frozen the funds as a response to Nairobi's repeated request to extend the freeze on repayments implemented in the first six months of 2021 due to the pandemic emergency until next December.
In fact, the Kenyan government's non-payments to Chinese banks, especially the Exim Bank of China, is causing a liquidity crisis that is consequently blocking projects already financed by the Asian country, as contractors cannot be paid on time to continue on schedule.
Executives from state-owned enterprises confirm that many projects are at risk of delays due to the funding hiccup.
After the six-month stop granted by China (as well as by Western countries) to the repayment, which was due on 30 June, the banks have found themselves displaced by the Kenyan State's further request.
The Ministry of the Treasury, for its part, has not given precise indications during this period regarding payments to contractors working on Chinese projects and paid by the direct method.
China is one of Kenya's largest foreign creditors, having lent as much as $740 million to build railway lines, roads and other infrastructure projects over the past decade up to April 2021.
Yesterday, the Chinese embassy in Nairobi confirmed the funding snag, but added that the matter was already being considered by officials of the two countries.
According to China's Xinhua news agency, the parties involved are in communication to renegotiate the DSSI (debt suspension initiative).
The reaction of Kenya's Treasury Minister Ukur Yatani, however, was of a different tone.
Yatani denied any disagreement, assuring that the country had received a positive response on debt extension from all creditor nations.
Indeed, the G20 countries, including Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Republic of Korea, Spain, and the United States, have agreed to a debt-spreading for the next four years, with 2021 as the date for interest on some $300 million lent.
The problem with China however is another, despite being a G20 member and signatory to the agreement, much of its lending to Kenya has been done on a commercial basis by government agencies, investee companies and state-owned banks, such as the China Development Bank and the Exim Bank of China.
China has sought to negotiate its debt relief agreements separately, but under the same terms as the G20 countries, reserving the right over the size and which loans will attract the moratorium.
The World Bank had estimated that Kenya could save $500 million from China between January and June under the DSSI agreement in terms of freezing principal and interest payments.
But China announced that Kenya would be granted a $245 million relief.
Should Beijing confirm this line, it is still unclear which projects might be slowed down by loans that will be skipped, but according to parliamentary sources quoted by the Kenyan business daily Business Daily, much of this funding would be linked to the fast railway that is supposed to connect the port of Mombasa to the Ugandan border town Malaba. For now, the railway will run to Naivasha, 120 kilometres north of Nairobi.