China says its ready to help Kenya deal with its debt challenges

China stands ready to help Kenya deal with its debt challenges and both sides are holding “smooth” talks over the issues, the Chinese embassy in Nairobi said on Monday.

“China attaches great importance to debt suspension and alleviation in African countries including Kenya,” the embassy said in a statement.

The East African nation’s revenues have been pummelled by the coronavirus crisis, at a time when more of its debts are falling due and as it is still grappling with gaping fiscal deficits.

China is one of its biggest external creditors, having lent it billions of dollars for the construction of rail lines and other infrastructure projects in the past decade.

China has signed debt service suspension agreements with 12 African countries and provided waivers of matured interest-free loan for 15 African countries under the G-20 debt service suspension initiative, the embassy in Nairobi said.

It did not say whether Kenya will get relief through the same initiative or if a separate deal will be struck.

Kenya secured a debt repayments relief deal with the Paris Club of international lenders last week and it is seeking further relief from non-Paris Club bilateral creditors.

The Paris Club which represents an informal group of official creditors disclosed Kenya’s application to join the initiative and its subsequent approval which will see Kenya enjoy a standstill on part of its external debt falling due between January 1 and June 30.

Kenya is set to save Ksh.32.9 billion in foreign debt repayments due to 10 bilateral partners under the Paris Club while the country further stands to save Ksh.40.6 billion from its DSSI application to the G20 presently under consideration.

Kenya passed up the opportunity to join the first part of the initiative which run for a six months period to December 31, 2020.

This is as the government through the National Treasury deemed the initiatives terms as too restrictive.

Among Kenya’s fears at the time included the implications of the country’s credit rating after signing up to the offer along with limitations of accessing international capital markets.

However, the Paris Club enhanced the terms of the DSSI to include the net present value (NPV) neutrality to participating countries meaning Kenya could not suffer a blow its credit rating for accepting the initiative.