Kenyan taxpayers are now facing a substantial financial burden of over KSh 1.7 billion in penalty charges following a default on the Standard Gauge Railway (SGR) loan from China Exim Bank.
According to recent Treasury reports, Kenya Railways was unable to meet its payment obligations of KSh 167.5 billion to the Chinese lender during the 2024/23 fiscal year.
Kenya Railways has failed to repay a Sh167.5 billion loan borrowed from China through the government to build the SGR, risking a Sh1.6 billion penalty.
— Moe (@moneyacademyKE) November 12, 2024
The SGR debt now makes up 62% of state agency loans, with taxpayers bearing the cost due to low revenue from the SGR
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Default Penalties and Loan Structure of SGR Loan
The Treasury Annual Debt Management Report 2023/24 reveals concerning figures about the defaulted loan. The SGR debt represents a significant 62% of the total KSh 266.5 billion owed by various state agencies.
The loan agreement includes strict penalty clauses, with defaults incurring a 1% fine on unpaid amounts, resulting in the KSh 1.68 billion penalty charges. The Treasury report states,
“The SGR loan accrued and not paid in FY 2023/2024 amounted to KSh 167.5 billion.”
Total SGR Loan
The penalty has contributed to a substantial increase in the total loan burden. The original loan of KSh 539 billion from China Exim Bank has now swelled by 36.8% to reach KSh 737.5 billion.
The railway line, connecting Mombasa to Naivasha, was initially planned to service its loan through generated revenue starting in 2020.
However, this financial responsibility has now shifted to the government treasury. The Treasury disclosed,
“SGR loans to Kenya Railways Corporation amount to Sh737.5 billion, which accounted for 61% of the total on-lent loans”
Impact of the Kenya Shilling
The financial strain has been further worsened by the weakening Kenyan shilling. In January 2024, this currency depreciation led to an additional KSh 14 billion increase in loan repayment obligations.
According to World Bank data, Kenya’s scheduled payment has risen to $536.9 million (KSh 84.7 billion), a significant increase from the KSh 70.2 billion paid in the corresponding period of 2023.
This increase is largely attributed to the shilling’s continued depreciation against the US dollar, with the exchange rate reaching KSh 157 per dollar.
