This archive report was first published on 17 October 2019.
On October 17, 2019, the government's ambitious railway projects were under scrutiny, with concerns that they may worsen the country's debt woes.
One of the major concerns is the Chinese loans borrowed for the Naivasha section of the Standard Gauge Railway (SGR). In December 2015, the government borrowed $1.6 billion from China Exim Bank for the Nairobi-Naivasha section of the SGR.
The terms of the loans are as follows: a fixed term of 15 years, inclusive of a grace period of five years; interest of six months of the London Inter Bank Offered Rate (Libor) plus 360 basis points; a management fee of 0.75 percent payable upfront plus a commitment fee of 0.75 percent of the undisbursed amount; and insurance from the China Export and Credit Insurance Corporation (Sinosure) at a premium of 6.93 percent payable in two instalments.
However, the government's ability to service these loans is a major concern. Domestic rail-road services are non-tradeable services and don't earn dollar revenues, which are needed to repay the principal and interest on these Chinese loans. The country's economy constantly runs a merchandise trade deficit, making it difficult to rely on export earnings to pay the Chinese.
As a result, the government may be forced to pursue a perpetual game of borrowing from Peter to pay Paul, juggling and rushing to international markets to borrow dollars to repay the principal and interest on the SGR loans as they fall due.
