Kenya has failed to repay Chinese loans used to construct the standard gauge railway (SGR), highlighting the country's struggles with mounting public debt.

According to Treasury documents obtained by Business Daily, Chinese banks fined Kenya Sh1.312 billion for loan defaults in the fiscal year ended June.

Kenya borrowed more than half a trillion shillings from Chinese lenders, led by the Export-Import Bank of China, to build the SGR from Mombasa to Naivasha.

Taxpayers have been forced to bear the burden of the SGR loans because revenues from passenger and cargo services on the track are insufficient to cover operating costs, which stood at Sh18.5 billion in the fiscal year to June against Sh15 billion in sales.

After the World Bank, China is Kenya's largest foreign creditor, accounting for roughly one-third of the country's external debt service costs in 2021-22. According to budget documents, Kenya spent Sh117.7 billion on Chinese debt during the period, with approximately Sh24.7 billion in interest payments and nearly Sh93 billion in redemptions.

Repayment of the SGR loan began in January 2020, following the expiration of a five-year grace period granted by Beijing to Kenya.

The loan default highlights Kenya's financial distress in the face of rapidly maturing debts that have eaten deep into tax collections and squeezed funds for development projects.

Former President Uhuru Kenyatta's administration borrowed heavily from China beginning in 2014 to build roads, bridges, power plants, and the SGR.

This began after Kenya achieved lower-middle-income status, which barred it from receiving highly concessional loans from development lenders such as the World Bank.