Kenya is in advanced talks with China to convert a significant portion of its U.S. dollar-denominated loans for the Standard Gauge Railway (SGR) into Chinese yuan.
This strategic financial maneuver is aimed at providing substantial fiscal relief to the East African nation, which is grappling with mounting debt.
The proposed conversion could reduce the interest rate on the loans from 6.37% to approximately 3%, effectively halving the annual debt servicing costs.
Kenya’s Treasury Cabinet Secretary, John Mbadi, highlighted this potential saving, stating that the move would offer “a big saving” for the government.
The shift from variable, dollar-denominated rates tied to the Secured Overnight Financing Rate (SOFR) to China’s fixed yuan rates is the primary driver of the expected reduction.
Kenya currently spends about $1 billion annually servicing its debt to China, and a quarter of its external debt obligations for the fiscal year ending in June 2025 are tied to these Chinese loans.
The negotiations reflect a growing trend of innovative financial mechanisms in China-Africa infrastructure collaborations, driven by increasing debt sustainability pressures across the continent.
While Beijing has not yet formally commented on the ongoing talks, the move underscores Kenya’s proactive approach to managing its external debt, which stood at $40.5 billion as of March 2025.
This effort to restructure its debt is particularly crucial for Kenya, which the International Monetary Fund (IMF) has classified as being at a “high risk” of debt distress.
The country has been under intense fiscal pressure due to rising debt obligations and sluggish revenue collection.
A successful conversion of the railway loan to yuan would not only reduce the interest burden but also provide much-needed fiscal space, insulating the country from the volatility of the U.S. dollar.