Germany is committed to waive a €60 million (Sh8.4 billion) loan owed by Kenya.
Germany has agreed to cancel a Sh8.4 billion loan owed by Kenya, but there's a catch.
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However, the waiver comes with a stipulation: Kenya must redirect these funds toward climate action projects.
This agreement, known as a debt-for-climate swap, is part of Germany’s broader initiative to address climate change while alleviating the financial burdens of partner nations.
The deal is outlined in the National Treasury's Annual Borrowing Plan for the Financial Year 2024/25.
"In 2024, Germany also participated in a debt swap program, converting €60 million for similar development purposes," the document reads.
The waiver will not only ease Kenya's financial obligations but also funnel crucial resources into renewable energy and sustainable agriculture, with a special focus on climate resilience projects.
Under the agreement, Kenya will allocate the equivalent of €60 million over several years to fund projects aimed at mitigating the effects of climate change.
The success of these projects will determine the extent to which Germany cancels the outstanding debt.
Some of the anticipated projects include improving rural infrastructure to enhance farmers' access to markets and supporting youth employment in climate-resilient sectors.
The debt-for-climate swap aligns with both Kenya’s and Germany’s goals of advancing sustainability and reducing carbon footprints.
Targeted projects
The €60 million (Sh8.4 billion) from the debt-for-climate swap between Germany and Kenya will be invested in various climate action projects.
A significant portion of the funds, €31 million (4.4 billion) will go toward the development of the Bogoria-Silali Block geothermal field.
This project is crucial for expanding Kenya's renewable energy capacity and stabilising the national power grid.
The balance of the funds will also be directed toward climate resilience projects in agriculture, particularly to increase food security and support youth employment in rural areas of western Kenya.
For example, improving rural road infrastructure will provide better access for farmers to markets, reducing post-harvest losses.
This arrangement represents a win-win situation: Kenya gets to reduce its debt while contributing to global climate efforts, and Germany strengthens its ties with the East African nation while advancing its own climate agenda.
The first country to waive its loan to Kenya in a debt swap program was Italy in 2006.
The program converted bilateral debt owed by Kenya to Italy into financial resources to implement development projects for a total amount of €44 million which was approximately Sh4.4 billion at the time, over a period of ten years.