China has rejected Kenya’s request to suspend service on the 32.8 billion shillings debt that was due between July and December 2021, the national treasury has told the International Monetary Fund (IMF).

This left the country with a saving of $ 89 million (10.05 billion shillings) from Paris Club members who accepted Kenya’s request for a debt freeze.

As a result, the Kenyan shilling has weakened significantly as the country plundered its reserve of dollars to repay loans owed to non-Paris Club members, including China, in the six months leading up to December of this year.

China is Kenya’s largest bilateral lender, with outstanding debt of 692 billion shillings, or 66.5 percent of all bilateral loans, as of the end of September 2021. National Treasury officials revealed they had requested to all its bilateral creditors a suspension of debt service estimated at 379 million dollars (42.8 billion shillings).

“However, this amount is now expected to be less than around 89 million dollars (10.05 billion shillings) due to the non-participation of some creditors,” Kenyan authorities said in a letter to the IMF boss.

During the first phase (January to June 2021), Kenya secured a debt suspension of $ 425 million (45.5 billion shillings), with China reluctantly joining other G-20 members in the Debt Service Suspension Initiative (DSSI), which aimed to give developing countries ravaged by the Covid-19 pandemic a bit of a break from their debt repayment obligations.

During this period, China granted Kenya a moratorium on repayment of its 30 billion shillings debt.

However, the Development Bank of China, another major Chinese lender, did not participate in the initiative.

China has reportedly rejected Kenya’s request to extend the debt service holiday by six months until December. Kenya is believed to have paid China $ 558.4 million (Sh 63.1 billion) between July and December 2021, according to World Bank data.

The repayment includes the first phase of the Standard Gauge Railway (SGR) from Mombasa to Nairobi, where Kenya was to pay Exim Bank of China around 10 billion shillings.

World Bank data, however, shows the country was due to pay China $ 325.7 million (Sh 36.8 billion) in July alone.

This differs from the data provided by the Treasury in one of its reports. In the report, the Treasury said it paid 29.86 billion shillings to China in three months between July and September.

However, data from the Central Bank of Kenya (CBK), the fiscal agent and banker of the National Treasury, shows that government net foreign assets (NFA) – a reserve of Kenyan dollar assets to the CBK have plummeted. of a whopping 47.7 billion shillings. in August, which means more dollars came out of state coffers in July.

“The decline in the CBK’s NFA was largely due to expected debt service and other central bank operations,” the National Treasury said.

The debt repayment marathon in the second half of 2021 has had a negative impact on the local currency, with the country’s export and tourism revenues not yet fully recovering from the negative effects of the Covid-19 pandemic.

However, the shilling has been supported by a constant influx of remittances from the diaspora as well as loans from multilateral institutions such as the World Bank and the IMF. The country also successfully issued a $ 1 billion (113 billion shillings) Eurobond in June.

As a result, Kenya was forced to painstakingly honor all of its external debt obligations due in the six months to December 2021, a situation that saw its external position deteriorate, with the shilling trading at a record high of 113. against the US dollar.