The World Bank has warned that Kenya’s huge appetite for Chinese loans risks choking the economy on huge repayment burden.

China’s loans to Kenya have been growing by 54 per cent a year between 2010 and 2014 with some of the credit having high interest rates, according to a research paper by World Bank economists.

In contrast, Kenya’s loans from its traditional foreign markets of Japan and France stagnated or declined. The main borrowing pertains to the standard gauge railway (SGR) funding.

“Kenya still has a heavy debt burden and China’s loans can bring debt to unsustainable levels. Some of China’s loans are non-concessional, which can raise debt-to-gross domestic product (GDP) levels quickly,” World Bank lead economist for Kenya Apurva Sanghi and his counterpart Dylan Johnson said.

They added that Kenya’s debt to China stood at Ksh262 billion ($2.6 billion) in June last year, up from Ksh82.9 billion ($821 million) a year earlier and Ksh14.7 billion ($146 million) in 2010.

In June last year, Kenya’s total stock of debt stood at Ksh2.8 trillion, accounting for 49.7 per cent of the GDP. Half of the debt load or Ksh1.4 trillion was sourced from foreign markets.

The Treasury has in the past said growing preference for external debt is due to cheaper or concessional terms with a grace period beyond six years.

Kenya’s domestic debt market has no grace period, while the cost has remained high due to high interest rates.

The World Bank said China issued a credit line of Ksh20.6 billion to Kenya for development expenditure in the last fiscal year ended June 2015, another Ksh12 billion to the Ministry of Energy for geothermal energy activity.

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