Nairobi has for the first time since independence cleared direct loans it owed to the United Kingdom.
According to the Data from the Treasury, Kenya does not owe the UK any cash as of June compared to a debt of Sh35 million in May and Sh1.4 billion in 2015.
The drop in direct loans from Britain comes at a time what the country opted to give funds to agencies the World Bank and Department for International Development (DFID) for onward lending to developing nations like Kenya.
The ease for the UK’s direct debt when countries like China ramp up loans to African countries. China has also used the debts for geopolitical influence.
“The World Bank Group is the leading official creditor to Kenya with the UK as a significant contributor to these resources. So for every dollar we receive from World Bank or IMF, the UK taxpayers funds are included, in a significant way,” said Haron Sirima, the director-general of Public Debt Management Office at the Treasury as reported by the Business Daily.
“Furthermore, the UK through its development assistance arm, DFID channels funds directly to the private sector non-state actors. This is a common practice by most EU countries and the US.”
The DFID now known as the Foreign, Commonwealth, and Development Office together with its investment institution CDC has been channeling loans directly to private sector companies such as M-Kopa Solar, Equity Banks, and Athi River Mining among others.
The influence of the UK in Kenya has, however, declined over the years. London has recently sought to create deeper relations with Nairobi after Brexit when former Prime Minister Theresa May visited Kenya in 2018.
No British Premier had ever visited Kenya for 30 years – a period that saw Kenya increasingly shift to China and the US for investments. A change in the structure of Kenya’s debt has seen China and private commercial institution increase their share of the country’s foreign debt, replacing bilateral lenders.
A third of Kenya’s Sh3.2 trillion foreign debt is owed to private creditors, including holders of Kenya’s Eurobonds with an outstanding Sh652,7 billion borrowed since 2014.
Beijing is Nairobi’s biggest bilateral lender with Sh671.15 billion as of June 2019.
Kenya’s total public debt was at Sh6.6 trillion as of the end of June 2020 and is expected to increase to SH10.4 trillion by June 2024.
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Kenya is changing its borrowing policy as per the 2020 medium-term debt strategy, abandoning the commercial loans which are expensive, short-term, and risky especially due to the shilling depreciation.
Kenya now prefers loans arranged from multilateral bodies since they come with friendly terms with low rates and longer repayment periods.