In Kenya’s case, its government took out vast loans after a period of economic expansion in the early 2000s to cover the costs of infrastructure projects, including roads, railways, massive dams and rural electrification. This latest global debt crisis cycle, however, which is considered to be the worst on record, was precipitated by events far beyond any single country’s control.
Altogether,
Nairobi owes $35 billion to foreign lenders.
The World Bank is the country’s largest creditor.
At the end of 2022,
Kenya owed at least $6.7 billion to China, according to the I.M.F. It owed another $7.1 billion to bondholders, $3.8 billion to industrialized countries, $3.5 billion to the African Development Bank and $1.9 billion to international commercial banks.
To avoid default, countries like Kenya are compelled to borrow even more money, only to find that their total debt burden grows even heavier. And the bigger the debt, the less inclined lenders are to offer additional financing.
China has cut back its lending in the past several years, after concluding that it was taking too many risks by lending to low-income countries. It has collected on previous loans and has issued fewer new loans.
It is not the only player to pull back from Kenya. Japan and France as well as big commercial banks in Italy, Germany and Britain have also trimmed their exposure.
In February, Kenya paid more than 10 percent on international bonds to have the cash to cover a payment for a $2 billion Eurobond from 2014 coming due this month.
The World Bank, the I.M.F. and the African Development Bank have all offered lifelines and increased their lending to Kenya to fill the gap when no one else would. But they, in turn, want the government to take steps, like raising taxes and cutting spending, to stabilize the country’s finances. In a nod to the toll such belt tightening would require, the recent
agreement with the I.M.F. noted that the country also needed to strengthen its social safety net.
