Kenya joins Asia Infrastructure Investment Bank in quest for more funding

Kenya has joined the China-led Asia Infrastructure Investment Bank (AIIB), in search for wider sources of long-term funding from an institution that was set up to challenge the US-backed IMF and World Bank.

President William Ruto made the announcement on Tuesday after meeting officials of the multilateral lender, led by Chairman Jin Liqun, in Beijing, as Kenya--facing a weaker financial position in the wake of the withdrawal of the Finance Bill-- hunts for long-term loans.

“The membership will enable Kenya to access concessional funding for infrastructure, climate change efforts, connectivity, regional cooperation and technology-enabled projects and programmes,” Dr Ruto said.

The lender says on its website that it does “not offer financing under concessional terms”, but has a Project Preparation Special Fund, which gives “grants for project preparation to finance the preparation of projects to be financed by AIIB in eligible member countries”.

The lender provides loans for infrastructure and other productive sectors such as energy, transport, information and communications technology, water and urban development.

The funds come with a maximum repayment period of 35 years.

The development financier, formed in January 2016, will give Kenya an option to raise cheaper funds at a time global credit firms have raised the country’s risk of default on sovereign borrowing.

The Cabinet approved Kenya’s subscription to AIIB in January as “part of the administration’s agenda on enhancing regional cooperation and connectivity through the green economy”.

China, the world's second largest economy, set up the AIIB to challenge the US-dominated IMF and World Bank after the US refused to give China more influence in these Washington-based global lenders.

The World Bank and International Monetary Fund lend to developing countries such as Kenya, but with certain conditions known as the Washington Consensus — a set of policies designed to promote the use of private markets, protect the environment, protect human and workers' rights, and foster non-corruption in government, among other values.

Other development finance institutions of which Kenya is a member include the World Bank, IMF and the African Development Bank.

The Beijing-headquartered lender has a membership of 109 countries and a capital base of $100 billion (about Ksh13 trillion), making it the world’s second largest multilateral development bank after the World Bank Group.

Kenya has joined the AIIB at a time when the country raised its borrowing target for the current financial year by Ksh172.19 billion to Sh1 trillion following the collapse of the 2024 tax bill, leaving a projected Ksh344.3 billion hole in the budget.

Unrelenting youth-led demonstrations against the IMF-backed new tax measures, elevated living costs, bad governance and corruption prompted Dr Ruto to withdraw Finance Bill 2024 in late June.

The fall of the tax bill has slowed down the country’s fiscal consolidation, which relies more on new and higher taxes than expenditure cuts, causing jitters among investors about the country’s financial health.

Three major global credit rating firms — Moody’s, Fitch and S&P — have consequently downgraded the country’s credit rating, making it more expensive for the country to access cash in international commercial markets in the form of Eurobonds.

This article originally appeared on The East African.