Kenya's three-month borrowing spree of $540 million ends up making the World Bank the country’s top creditor ahead of China

Kenya borrowed Sh54 billion ($540 million) from the World Bank loans during a three-month borrowing spree which effectively makes the Washington DC-based lender the country’s top creditor ahead of the Chinese.

The World Bank’s total lending to Kenya now stands at Sh581 billion ($5.8 billion) as at the end of June, slightly ahead of China’s Sh557 billion ($5.5 billion), according to a new Treasury report.

Combined, the two foreign lenders now account for about one-fifth of Kenya’s total public debt load, which has already crossed the Sh5 trillion mark.

As a result of the hefty loans owed to China and the World Bank, the two have a significant influence on the country’s economic policy planning.

Kenyan turned to China to fund the construction of the country’s largest infrastructure project since independence, the standard gauge railway (SGR), at an estimated cost of Sh327bn ($3.8bn) for the Mombasa-Nairobi phase of the project.

The loan, which China Exim Bank provided 90 per cent of, while the remaining 10 per cent was to be contributed by the Kenyan Government, saw China race ahead of the World Bank as at the end of December to become Kenya’s biggest creditor for the first time ever.

Also read: These are Kenya's top lenders in 2017 and how much the country owes each

Madaraka Express commercial viability has been and continues to be the subject of intense scrutiny.

China was still ahead of the World Bank as at end of March, but the ranking changed quickly in the three months leading to June.

The new World Bank loans were part of the borrowing intended to plug the Treasury’s budget deficit for the fiscal year 2017/18.

The World Bank channelled the money mainly through its concessionary lending arm, the International Development Association.

Public debt levels have not yet reached Parliament’s approved maximum of 74 per cent as a ratio to the gross domestic product, but repayment had already exceeded the recommended 30 per cent as a proportion of ordinary revenue, mostly comprising taxes.

“A middle-income country like Kenya should spend no more than 30 per cent of its ordinary revenue in repaying debt. A developed country like Canada or Norway can spend as much as 35 per cent, but Kenya should not exceed 30 per cent.

"The public debt to GDP ratio is just one measure, but the one of servicing to ordinary revenues should be given more weight,” International Budget Partnership (IBP) researcher John Kinuthia told a local business daily.

Kenya’s debt level is currently at about 58 per cent of the GDP.