Kenya Converts $3.5 Billion In Chinese Loans To Lower Interest Burden

Kenya has successfully converted three major railway construction loans from U.S. dollars to Chinese yuan in a bid to reduce its interest expenses, according to the country’s Finance Minister, John Mbadi.

Mbadi announced on Tuesday that the currency conversion, covering loans from China Exim Bank will result in an estimated annual saving of about $215 million. The swap allows the previously dollar-based floating interest rates to be adjusted to yuan-based rates, which are lower.

“It kicks off immediately and it is a saving in our fiscal space,” Mbadi told journalists during a media briefing, though he did not disclose the total amount of debt converted.

The loans, initially valued at $5 billion, were obtained between 2014 and 2015 to finance the construction of Kenya’s standard gauge railway linking the coastal city of Mombasa to Naivasha in the Rift Valley. As of June last year, the outstanding balance on these loans stood at around $3.5 billion, according to data from the finance ministry.

China has yet to issue a public statement regarding the shift to yuan-denominated repayment.

Kenyan authorities explained that the decision was partly driven by the heavy concentration of the nation’s foreign debt in U.S. dollars, which makes the economy vulnerable to exchange rate volatility and higher interest costs. Current estimates show that roughly 68% of Kenya’s external debt is dollar-based.

President William Ruto’s administration has intensified efforts to bring the national debt currently near 70% of the country’s GDP under control. The government is pursuing a revised debt management plan aimed at easing repayment pressures and restructuring loan maturities.

Additionally, Kenya is exploring new financing strategies, including revenue securitisation, to fund critical infrastructure projects such as extending the railway line to the Ugandan border and upgrading Nairobi’s main international airport.

An International Monetary Fund (IMF) delegation is presently in Nairobi to discuss a fresh financial support programme, following the conclusion of the previous one in April.

Mbadi said the negotiations were progressing positively.
“We need the IMF,” he stated. “Yes, our economic conditions have improved but we must not lose sight that we need more concessional loans and they come from multilaterals like the IMF and the World Bank.”