By Carlos Mureithi and Lee Mwiti
Worried about being up to its ears in debt, Kenya’s government wants to hire experts to manage its borrowing, local media has reported.
National Treasury data shows Kenya owes China 72% of its bilateral debt. But bilateral debt is just a part of a country’s external debt.
Much of Kenya’s borrowing in recent years has been from China, US-based news website Quartz, said in a July 2018 article. But does China account for nearly three-quarters of the money Kenya owes foreign lenders, as Quartz alleged?
Quartz said its source was an article in the Business Daily that cited data from Kenya’s Treasury, which quotes official statistics that provide information on the 2018/19 Kenyan budget statement. They showed that as at 31 March 2018, Kenya owed China Sh534.1 billion, or 72% of the country’s total bilateral debt of Sh741 billion.
Data from Treasury
Bilateral debt generally refers to debt loaned by one state to another state, according to Odongo Kodongo, a professor at Wits University’s Business School, who has researched Kenya’s debt. An example would be Kenya borrowing from Uganda. It therefore is not issued to private sector lenders such as banks.
Kodongo agreed, as did Prof Indermit Gill and research associate Kenan Karakulah from the Duke Centre for International Development. Gill and Karakulah said they crosschecked the newspaper’s data against that of the Central Bank of Kenya, while Kodongo used March 2018 data from Kenya’s treasury. According to these experts, and available data, this share of bilateral debt held by China is accurate.
Bilateral debt is one part of external debt
But while it may be true for bilateral debt, it’s not true for all of Kenya’s foreign debt. Bilateral debt is just one of three components of external debt, Gill and Karakulah say.
External debt is the total public and private debt that a country owes foreign creditors, they explained. It “covers bilateral debt, multilateral debt and commercial debt.”
Multilateral debt is owed to international financial institutions such as the African Development Bank, the World Bank and the International Monetary Fund. Commercial debt is money loaned by private organisations, such as banks, for profit.
“All bilateral debt [is] external debt, but not all external debt [is] bilateral debt,” Kodongo offers. External debt also includes privately held international debt such as Eurobonds. It is therefore “not accurate” to say that China holds more than 70% of Kenya’s external debt.
So, what is China’s share of Kenya’s external debt?
By Gill and Karakulah’s calculations, Kenya’s external debt as at 31 March 2018 was Sh2.51 trillion. It was made up of: multilateral debt of KSh832.22 billion, commercial debt of Sh799.19 billion, bilateral debt of Sh741.04 billion and guaranteed debt (that backed by a public body) of Sh140.04 billion. China’s share of this debt is therefore Sh534.07 billion of KSh2.51 trillion.
“Kenya’s debt to China is [thus] 21.3% of Kenya’s external public debt,” the researchers conclude.
Why debt levels matter
Borrowing is useful if it is for investment and not consumption, experts agree. How much a country produces and exports matters more than absolute debt levels, Kodongo explains, “Because these are better indicators of a country’s ability to repay.”
The terms of the debt – its interest rate and repayment period – are also significant, Gill and Karakulah concur.
It’s important to note that while Kenya’s external debt to China almost doubled between 2015 and March 2018, in the same period the country’s commercial debt grew faster. (