Kenya Negotiates Shift from Dollar to Yuan in Bid to Ease Debt Burden

Kenya is negotiating with China to convert part of its dollar-denominated loans into yuan and extend the repayment period, in a move aimed at reducing annual debt servicing costs and easing fiscal pressures.

Treasury Secretary John Mbadi confirmed the talks in Nairobi on Wednesday, stating that discussions with Beijing focus on loans tied to the country’s $5 billion railway project connecting Mombasa to Nairobi and Naivasha.

He noted that the debt reprofiling plan is expected to deliver substantial savings once concluded.

“The moment we move from US dollar to renminbi, automatically, the interest rate reduces by almost half,” Mbadi said. “To us, that is a big saving.”

Debt Burden and Fiscal Pressures

Kenya spends approximately $1 billion annually servicing its loans to China, which account for about a quarter of the nation’s total external debt payments for the fiscal year through June 2025, according to a parliamentary report.

The Export-Import Bank of China remains Kenya’s largest official bilateral lender.

Of the country’s $40.5 billion external debt stock as of March, $14.4 billion was owed to the World Bank, $7.52 billion to Eurobond investors, and $5.04 billion to China. With the International Monetary Fund classifying Kenya at high risk of debt distress, Nairobi has been under pressure to reprofile its liabilities amid weaker revenue collection and mounting arrears.

Railway Loans in Focus

The negotiations with Beijing are centered on loans obtained to build the standard gauge railway (SGR), Kenya’s most significant infrastructure project since independence.

The government is seeking not only to switch currency denomination from the dollar to yuan but also to secure longer repayment terms to ease immediate fiscal pressures.

Mbadi explained that the strategy is part of broader efforts to stabilize public finances strained by heavy infrastructure borrowing, underperforming revenues, and expenditure carryovers.

“Some decisions taken on huge infrastructural developments gobbled quite a huge chunk of money, almost exclusively funded through external borrowing,” he said.

Policy and Market Outlook

The proposed debt reprofiling follows earlier steps by the government to explore repurchases of local-currency bonds and restructure obligations in order to create budgetary space.

Analysts say a successful conversion to yuan and extension of tenor would mark a significant shift in Kenya’s debt management approach, potentially lowering borrowing costs and insulating repayments from dollar volatility.

China remains a strategic partner for Kenya in infrastructure and financing, and the outcome of the talks is expected to have a major impact on the country’s fiscal trajectory in the coming years.