【By Observer Net, Ruan Jiaqi】

According to U.S. media Bloomberg, on the 20th, on Wednesday, John Mbari, Minister of Finance and Economic Planning of Kenya, told an interview in the capital Nairobi that Kenya is negotiating with China to convert a dollar-denominated railway loan into a renminbi debt and extend the repayment period to ease fiscal pressure. He claimed that the related discussions are expected to end soon, but did not mention a specific timetable.

According to "Business Insider" Africa edition, Kenya spends about $1 billion annually to repay its largest bilateral creditor, China. Mbari told the U.S. media that due to lower Chinese interest rates than the United States, converting the loan could save Kenya money, and extending the repayment period could also release much-needed fiscal space.

He said, "As long as we change the currency of the loan from dollars to renminbi, the interest rate will almost automatically be halved. At the same time, adjusting the loan term can also bring benefits to Kenya. For us, this will be a considerable cost saving."

According to Mbari's disclosure, the focus of the negotiations with China is the relevant loans provided by China for the construction of the Mombasa-Nairobi Railway and the first phase of the Nairobi-Malaba Railway, with a total investment of approximately $5 billion. These railways connecting the port city of Mombasa, the capital Nairobi, and extending to Naivasha are one of the largest infrastructure projects in Kenya so far, which is of great significance for upgrading the country's transportation network.

The Mombasa-Nairobi Railway was officially opened on May 31, 2017. It is the first railway built in Kenya since independence and a landmark project of the Belt and Road Initiative between China and Kenya. The railway was constructed by China Communications Construction Company and operated and maintained by its subsidiary Africa Star Railway Operation Co., Ltd.

According to a report from People's Daily, as of August 16, the Mombasa-Nairobi Railway has safely operated for 3000 days, transporting 15.928 million passengers and 41.963 million tons of cargo. During the construction and operation of the project, it created 74,000 jobs and trained about 2800 Kenyan standard gauge railway technical talents. According to the Kenyan Railway Authority, the project contributes more than 2% to the country's GDP.

On May 31, 2017, in Woyi, Kenya, a newly acquired standard gauge railway train carrying the Kenyan president entered Woyi Station, marking the first operation of the new standard gauge railway from the coastal city of Mombasa to the capital Nairobi. Visual China

According to Bloomberg, Kenya is currently facing severe debt pressure and has been listed by the International Monetary Fund (IMF) as a high-risk country for debt crisis. After anti-government protests in 2024 forced President Ruto to remove tax increase provisions from the fiscal bill, national fiscal pressure further increased, and Kenya has been taking measures to resolve loan issues.

Data from the Kenyan Ministry of Finance shows that as of the end of March this year, the country's total foreign debt of $40.5 billion includes $14.4 billion owed to the World Bank, $7.52 billion to European bond investors, and nearly $5.04 billion to China.

A parliamentary report showed that in the fiscal year ending in June this year, the country's repayment amount to China's Export-Import Bank, the main official creditor institution, is estimated to account for about a quarter of the total foreign debt repayment.

According to the Kenyan Ministry of Finance, the current public finance is under pressure, partly due to insufficient tax revenue and the accumulation of loan repayments; on the other hand, debts to suppliers and contractors and the carry-over of expenditures from previous fiscal years continue to squeeze limited financial resources.

According to Reuters on the 19th, Kenya is also considering issuing long-term bonds to raise funds and use the proceeds to repurchase maturing domestic bonds to deal with the large-scale bond maturity wave and alleviate public fiscal pressure. A source familiar with the matter said that the target amount for bond repurchase would be temporarily determined based on market conditions and other government financing priorities, without a fixed standard.

According to "Business Insider" Africa edition, the so-called "diaspora bond" aimed at Kenyan overseas citizens is expected to have an initial issuance scale of $250 million to $500 million. The Chief Cabinet Secretary and Foreign Minister of Kenya, Mwadavi, said that the country is discussing the bond design plan with a department of the World Bank and plans to gradually expand the project to $3.8 billion.

In an interview, he explained that the funds raised through the bond may be focused on specific infrastructure sectors, "it could be accelerating rural electrification, or it could be key infrastructure such as roads, railways, and airports."

Regarding the direction of fiscal policy, Mwadavi pointed out that in order to control the cost of living, the authorities are striving to curb inflation and raise funds through privatization, public-private partnerships, and asset securitization to support infrastructure projects. Data shows that Kenya's annual inflation rate in July has dropped to 4.1%, down from a peak of 9.6% in September 2022.

"Because of the strong public opposition to the tax increase policy, we have focused more on finding alternative solutions for project financing rather than implementing a tough tax increase strategy," he said, "We are trying to ensure that our fiscal expenditure is in line with our income. We know that even globally, it is a difficult time now."

According to data from London Stock Exchange Group (LSEG), Kenya faces a domestic bond maturity pressure of 495 billion Kenyan shillings (approximately $384 million) just this year. Next year, this amount will further increase to 822 billion Kenyan shillings (approximately $637.2 million). The aforementioned source said that in this situation, Kenya must adjust its debt strategy to optimize the debt maturity structure.

Kenya previously experienced adverse consequences from a huge one-time debt repayment: In the months before February 2024, due to market concerns about the government's inability to repay a $2 billion euro bond maturing in June of the same year, the Kenyan shilling continued to depreciate, breaking historical lows. Ultimately, the government repaid the debt by issuing a new euro bond, temporarily easing market concerns and pushing the shilling exchange rate to rebound.

However, borrowing from the international bond market to repay maturing bonds usually comes with high interest rates. This practice of "borrowing from one place to pay another" is often a short-term solution that leads to increasing debt. This is one of the key reasons for a country falling into a debt trap.

According to the report, the Kenyan Central Bank has not yet responded to the plan, and the finance minister Mbari has not commented on it yet.

Bloomberg's report also mentioned that Kenya is expected to host officials from the International Monetary Fund next month to continue negotiations on a new financing plan after the previous round of financing plan expired in April this year.

This article is exclusive to Observer Net and may not be reprinted without permission.

Original: https://www.toutiao.com/article/7540856846832157238/

Statement: The article represents the views of the author and is welcome to express your attitude by clicking on the [top/foot] buttons below.