East African economies have been severely affected by the outbreak of Covid-19. Since March this year when the first case of Covid-19 was reported in East Africa. Production, bank services, both domestic and international trade routes were disrupted which caused a sharp decline in key export prices, and severe disruptions to other economic activities all over the region and African at large.
As a way of confronting the economic havoc wreaked by the Covid-19 pandemic, East Africa’s Finance Ministers have signed many loans from the western donors and at the same time applied for loan forgiveness and debt repayment holidays.
Currently, International Monetary Funds (IMF) and World Bank have lent out some huge sums of money to East African countries and most of the money borrowed has been allocated for Covid-19 responses and budget support.
As per now the declared money borrowed by all economies in East Africa is over USD3bn where a portion of it has been injected in the economies to redeem them from collapsing while another to fight against the pandemic.
Currently, they are only three countries in the East African Community that have borrowed money. Kenya has the lion’s share almost signed over USD1.5bn loan as if that is not enough on 20th May 2020, World Bank approved another loan of USD1bn, to strengthen their dwindling foreign reserve and to curb the continuous weakening of the Kenyan shilling.
Uganda takes the second place with over USD600bn plus another proposal of USD 300m tabled by Finance minister Matia Kasaija in Parliament on Tuesday. Rwanda has so far borrowed over USD300bn.
However, according to experts, such a huge amount of money may not be able to be paid back while at the same time building up these dilapidated economies back to normal, there must be a debt repayment holiday of at least two to three years.
In an interview with this website recently, minister Kasaija said that the only way East African economies may survive is to secure debt repayment holidays from donors for over two years.
“We are trying to secure debt repayment holidays, however, I’m not sure if they will accept, but we are trying,” he said.
More reports have revealed that not only East African economies that are in huge debts but most African government are campaigning for debt cancellation and payment holidays.
However, their hopes to see that the benevolent western donors clear some of their loans to zero is likely to be sabotaged by China, due to its huge debts on East Africa and African countries at large.
This simply means that even if Western donors approval the plea of East African leaders to have debt repayment holidays, it may not create any impact if the big donor China has not cancelled its loans too.
China has been lending Africa for over two decades and currently is the number one creditor to Africa, therefore any comprehensive debt deal, including write-offs, would require China to take a leading role and swallow some huge losses.
As of 2018, 20 per cent of Africa’s debts are owed to China. According to reports from Africa Growth Initiative, although China is a member of the IMF and World Bank and would like to participate in the collective debt relief, it’s unlikely to take a unilateral approach to debt forgiveness.
China’s loans to East African countries
In the past decade, East African economies have borrowed over USD29.42 bn from China to grow their transport, communication, manufacturing and energy sectors.
Data reports from the China-Africa Research Initiative (Cari) at John Hopkins University indicates that Kenya owes China USD9.8 billion, Uganda owes USD2.96 billion, Tanzania USD2.34 billion, Rwanda, South Sudan and Burundi owe China the least amounts USD289 million, USD182 million and USD99 million respectively.
According to the financial reports from Beijing, given the magnitude of the Chinese loans in East Africa, even partial forgiveness will create major financial losses for China, yet her economy has also suffered tremendously from the Covid-19 that has also retarded her domestic economics and the trade war with the United States.
IMF reports prove that major western countries with bigger economies can afford to grant debt relief to least developed economies because their loan terms were not like that of China. However, a large part of China’s debt to Africa has stringent commercial terms which can be hard for China.
Secondly, China itself is still an emerging economy with per capita income of USD10,153 in 2019, below the average of USD45,447 for the top seven major economies.
The third factor that may also complicate China’s will to debt relief to Africa is the recent domestic controversy of Chinese nationals’ racial segregation against Africans in China. Experts say that China’s move to zero out its debts to Africa may spark a domestic riot by Chinese nationals blaming their government for squandering their taxpayers’ money to appease African nationals who not fully appreciating.
However, according to Yun Sun the Chinese foreign policy expert, in the past year, China has always been forgiving zero-interest loans for poor and least-developed countries in Africa. In 2005, China announced forgiveness of USD10 billion zero-interest loans for Africa.
By the first quarter of 2009, China had cancelled 150 such loans owed by 32 African countries. In 2018, Chinese President Xi Jinping announced forgiveness of all intergovernmental zero-interest loans for least-developed African countries that have diplomatic relations with China.
“Debt forgiveness by China without similar forgiveness by other lenders is seen as neither fair nor feasible: China certainly will not allow itself be singled out as the only party that needs to provide the debt relief in these other areas to Africa. Why should China carry the quite substantial financial loss alone?” she asked while on Focus on Africa last month.
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