Kenya’s economic crisis highlights debt burden amid growing Chinese influence

Massive violent protests erupted in East Africa’s Kenya last week, killing at least 19 people. The Kenyan debt crisis underscores the challenges many African countries face in balancing development goals and financial sustainability.

Kenya, considered one of East Africa’s most economically developed and politically stable countries, experienced protests where demonstrators expressed their anger against President William Ruto, demanding his/her resignation due to the introduction of the Finance Bill 2024 which included tax hikes, with Ruto temporarily suspending the controversial Tax Bill in response to public outrage.

According to a report by US-based Vox Media, Kenya’s total debt is US$80 billion, which includes both domestic and foreign debt. This debt is 68 percent of Kenya’s GDP, which is more than the maximum of 55 percent recommended by the World Bank and the IMF.

With the Finance Bill withdrawn, President Ruto will have to outline new measures to tackle the debt crisis. he/she has mentioned austerity measures, but he/she will have to strike a balance between meeting the needs of Kenyans and satisfying the country’s creditors.

The crisis began with the Kenyan government’s attempt to pass an IMF-backed finance bill, which proposed to raise taxes on a variety of goods including imported sanitary pads, tires, bread, and fuel. The bill was intended to raise an additional 200 billion Kenyan shillings (about US$1.55 billion) to service the country’s debt.

Most of Kenya’s debt is held by international bondholders, with China being its largest bilateral lender, owing US$5.7 billion. Kenya’s debt situation stems from heavy borrowing to finance infrastructure projects. The country has borrowed from multinational lenders such as the World Bank and the IMF, as well as bilateral partners such as China. The COVID-19 pandemic and the Ukraine war worsened the situation, driving up spending and sending global food and energy prices soaring.

The debt issue has sparked international scrutiny, with Washington often accusing Beijing of engaging in “debt trap diplomacy” through its infrastructure investments under President Xi Jinping’s Belt and Road Initiative. China denies these allegations, however.

Kevin P. Gallagher, director of Boston University’s Global Development Policy Center, highlights the lack of a well-functioning global financial safety net as a key contributing factor to Kenya’s debt challenges.

Kenya-based economist Aly-Khan Satchu, quoted by Voice of America, described Kenya as being in a “full-blown debt storm”, noting Kenya’s shift in geopolitical alignments and efforts to reduce dependence on Chinese financing with support from the World Bank and IMF.

However, Satchu also pointed to challenges posed by Kenya’s need to allocate IMF and World Bank funds to repay loans owed to China, particularly relating to infrastructure projects such as Chinese-built railways.

The Sunday Guardian quoted Paul Nantulya of the Africa Centre for Strategic Studies, who highlighted China’s important role in building and financing infrastructure in Africa.

Concerns arise when African countries struggle to repay these loans, potentially leading to their assets being seized by China. Countries such as Zambia and Ghana defaulted on their payments and later reached agreements with their lenders to restructure their debt. These cases highlight the need for a balanced approach to debt management and economic stability.

Kenya’s economic and political landscape is fraught with challenges as it tackles its debt burden and seeks to effectively manage its international relations. A collaborative approach involving appropriate taxation, debt restructuring, and international support is necessary to tackle this crisis without further burdening the population.