Accumulated Chinese loans pushed Kenya near default and Beijing may seize Kenyan assets if it could not pay its debts.

Since 2014, Kenya has been taking huge loans from China to fund its infrastructure projects such as roads, clean power generation plants, and its biggest project, the Standard Gauge Railway. Kenya's external debt reached $ 36.4 billion in June 2022, according to data from the Central Bank of Kenya, reported Financial Post.

China, which accounted for about one-third of Kenya's 2021-22 external debt service costs, is the nation's biggest foreign creditor after the World Bank.

Kenya spent a total of Ksh 117.7 billion ($ 972.7 million) on Chinese debt in the period, of which about Ksh24.7 billion (USD 204.1 million) is in interest payments and almost $ 93 billion ($ 768.5 million) in redemptions. Kenya's Treasury projects debt repayments to the Exim Bank of China will raise to $ 800 million in the next financial year, a 126.61 per cent surge from the revised $ 351.7 million budgeted for 2022, reported Financial Post.

Notwithstanding China's frequent denial of pushing developing Afro-Asian countries into debt traps, Kenya is the new entrant in the list of defaulting countries.

Moreover, the Chinese banks fined Kenya Ksh1.312 billion ($ 10.8 million) in the year ended June for loan defaults. Kenya defaulted on repayment of the Chinese loans taken to build the standard gauge railway (SGR).

The deal to fund the first phase of the SGR, Kenya's single-largest infrastructure project by cost since independence, saw China overtake Japan as Kenya's largest bilateral lender. But the initial jubilation has turned to instability, reported Financial Post.

The default came in a year when Kenya had asked for an extension of the debt repayment moratorium from bilateral lenders, including China, by another six months.

But the lenders, especially the Exim Bank of China, did not entertain Kenya's application for a debt repayment holiday, causing a standoff that delayed disbursements to projects funded by Chinese loans, reported Financial Post.

Further, due to the economic slowdown caused by the Covid-19 lockdowns and disruptions Kenya faced a deteriorating cash-flow situation, marked by falling revenues, which worsened its repayment capability and accumulated debt service obligations.

The surge in liabilities left Kenya at high risk of debt distress, according to the International Monetary Fund (IMF), reported Financial Post.

The cost of servicing public debt is poised to jump by a third to a record Ksh 1.39 trillion ($ 11.4 billion) in the fiscal year through June 2023, more than half of projected State revenue.

Kenya spent almost 57 per cent of taxable income in the past financial year on repaying loans, according to the Treasury, underlining the effects of the mounting public debt on State finances.

Taxpayers in Kenya have been forced to pay back the huge loans owed to China from their pockets as the revenue currently being generated by the SGR falls short of meeting the annual operational costs and also paying back the loans, reported Financial Post.

While China is a G20 member and a signatory to the debt relief deal it did not extend the debt repayment period despite a desperate request from Kenya.

Rather it continued with the debt repayment schedule, a large proportion of which 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.

The terms of China's loan deals with developing countries are unusually secretive and require borrowers to prioritize repayment to Chinese state-owned banks ahead of other creditors.