IMF Warns Kenya After Shocking Yuan Loan Swap for SGR Debt
Kenya’s recent move to repay its Standard Gauge Railway (SGR) loan in Chinese yuan rather than US dollars has raised concerns from the International Monetary Fund about potential currency risks.
The IMF said that while converting loans into alternative currencies can reduce debt costs, countries must weigh the benefits against potential new vulnerabilities. “While these transactions may lower costs, they can also introduce currency risks depending on their structure,” a Washington-based IMF spokesperson told Bloomberg.
The IMF added that such operations should be considered as part of comprehensive medium-term debt and reserve management strategies to balance cost and risk.
Kenya completed the conversion of its Ksh646.15 billion (USD 5 billion) SGR loan from dollars to yuan on October 7, Treasury Cabinet Secretary John Mbadi confirmed. Sources at the Treasury said the move could save Kenya roughly Ksh27.78 billion (USD 215 million) annually by reducing dollar-based interest rates on the two tranches of the loan.
Officials also said the currency swap would ease the pressure on Kenya’s debt repayments while lowering overall financing costs.
The strategy appears to be influencing the region. Two weeks later, Ethiopia entered discussions with Chinese authorities to convert part of its USD 5.38 billion (Ksh695.23 billion) debt into yuan-denominated loans. Officials said the move aims to cut financing costs and strengthen bilateral trade.
According to President William Ruto’s economic adviser David Ndii, Kenya’s decision was partly influenced by pressure from Western lenders, including the IMF and World Bank. These lenders were reportedly concerned that Nairobi was using dollar loans to repay China instead of funding domestic infrastructure and budget priorities.
“The Western lenders questioned why they ought to help us while other lenders were taking out the money,” Ndii said. “For this reason, they exert pressure on nations to restructure their debts so that the funds they invest remain in the nation rather than being used to pay off other lenders.”
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IMF Warns Kenya After Shocking Yuan Loan Swap for SGR Debt