Kenya’s National Bureau of Statistics (KNBS) released grim new data this week that highlights the acute problems confronting developing countries with large Chinese trade deficits and debts, both of which increased substantially:

• TRADE: The country’s trade deficit with China surged 15% to $3.6 billion in the first quarter of the year compared to the same period in 2021. Despite promises from policymakers in both countries to remedy the trade imbalance, Kenya’s exports to China remain flat at around $127 million. This is by no means a problem unique to Kenya. Ghana, Senegal, Ethiopia, and dozens of other developing countries in Asia, the Americas, and Africa face a similar dynamic: they are spending dwindling hard currency reserves to pay for imported Chinese products at levels many experts see as unsustainable.

• DEBT: Kenya’s total external debt increased by almost 12% y-o-y to $35.6 billion. While China accounts for less than 10% of the country’s $70 billion total public debt, it remains one of the country’s largest external creditors, with most of its loans priced in U.S. dollars. Furthermore, the China Exim Bank, unlike other bilateral creditors like France and Japan, has refused to reschedule Kenya’s loan repayments, adding further pressure on the Treasury. There are two key issues confronting heavily indebted developing countries with large Chinese debt portfolios: 1) Most of those loans are priced in dollars. These are now much more expensive to service, given the depreciation of many national currencies; 2) While China has rescheduled several loans to developing countries, it has refused, at least so far, to cancel or take major losses on commercial loans. This is why the debt restructuring talks currently underway for Zambia are being closely watched by finance leaders in Sri Lanka, Laos, Angola, and other countries with large amounts of Chinese debt. 

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