Kenya Converts $5 Billion SGR Loan to Chinese Yuan to Cut Costs and Ease Dollar Pressure
Kenya has converted its Standard Gauge Railway (SGR) loan from US dollars to Chinese yuan, a major shift in how the country manages its foreign debt.
Treasury Cabinet Secretary John Mbadi confirmed on Tuesday that the government had finalised the conversion of the Ksh646.15 billion ($5 billion) loan from China, citing significant interest savings.
According to Reuters, the switch will save Kenya Ksh27.78 billion ($215 million) annually due to lower yuan-based interest rates compared to those tied to the US dollar.
“The conversion is to reduce our cost of debt and ease pressure on foreign reserves,” Mbadi said, adding that it aligns with the government’s broader strategy to strengthen the shilling and ease debt servicing.
The loan was secured in 2013 to fund the construction of the Standard Gauge Railway and is one of the largest Chinese-financed infrastructure projects in Africa. With the repayment shift, Kenya will no longer need to buy large amounts of dollars from the market to service the debt.
Economists say the move could stabilise the shilling by reducing dollar demand, potentially easing exchange rate volatility. “Reduced dollar demand will not only support the local currency but also Kenya’s foreign exchange position,” said a Nairobi-based analyst.
The Central Bank of Kenya will also benefit from the move, with the possibility of preserving more foreign exchange reserves, improving import cover and boosting investor confidence.
Kenya’s public debt has been a thorn in the flesh, with both the International Monetary Fund (IMF) and investors warning that the country is at high risk of debt distress. The government has been under pressure to find alternative ways to manage its fiscal position without burdening taxpayers.
Last year, efforts to increase tax revenue through the 2024 Finance Bill sparked protests, forcing President William Ruto to withdraw several proposals. Since then, the administration has turned to debt restructuring and currency conversion to create fiscal space.
The switch to yuan repayments is a global trend as several countries are diversifying away from the US dollar in trade and debt settlements. For Kenya, it’s a pragmatic financial move and a strategic rebalancing of its external relations.
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Kenya Converts $5 Billion SGR Loan to Chinese Yuan to Cut Costs and Ease Dollar Pressure