Kenya has moved to ease its debt burden by converting three dollar-denominated railway loans from China into yuan, Finance Minister John Mbadi announced Tuesday, October 08.
The currency swap allows interest on the loans — originally tied to floating U.S. dollar rates — to shift into lower yuan-based rates, producing an estimated annual saving of $215 million.
Mbadi told reporters the conversion “kicks off immediately” and constitutes a meaningful “saving in our fiscal space,” though he did not disclose the total outstanding principal.
Last week, President William Ruto’s chief economic adviser, David Ndii while posting on X (formerly Twitter) had indicated that Kenya had also extended the loans’ tenures and reprofiled maturities, though he offered no further specifics.
The original borrowing dates back to 2014 and 2015, when Kenya secured three separate Chinese Exim Bank loans amounting to $5 billion to build the Standard Gauge Railway (SGR) from Mombasa, inland through Nairobi, up to Naivasha.
By June last year, the outstanding balance of those loans had been reduced to approximately $3.5 billion.
Officials say the move is not only about lowering interest costs but also reducing exposure to currency risk.
About 68 percent of Kenya’s external debt is denominated in U.S. dollars, which subjects the country to swings in exchange rates and higher interest burdens.
Rapid debt accumulation under two administrations
The debt conversion move comes against a backdrop of rapid borrowing by Kenya over recent years.
During President Uhuru Kenyatta’s ten-year tenure (2013–2022), the national debt expanded from around KSh 1.8 trillion to KSh 8.6 trillion, an increase of roughly KSh 6.8 trillion.
Much of that was borrowed through external instruments such as Eurobonds and was directed into large-scale infrastructure projects — most prominently, the SGR.
When William Ruto took office in September 2022, the public debt stood at KSh 8.6 trillion.
By June 2025, it had climbed to KSh 11.81 trillion, an increase of approximately KSh 3.1 trillion in under three years. This surge includes both external and domestic borrowing.
Some analysts suggest that the rate of accumulation under Ruto has outpaced that of his predecessor when measured over similar periods.
The current government’s reliance on debt has continued even as it pledged during the 2022 campaign to slow new borrowings.
In practice, the administration says it needs to roll over maturing obligations while funding deficits and key projects — such as extending the railway from Naivasha toward the Ugandan border and upgrading Nairobi’s airport.
A key driver behind the debt increase is the high cost of servicing existing borrowings.
In the fiscal year through May 2025, Kenya reportedly spent KSh 1.448 trillion on debt repayments, including over KSh 1 trillion solely in interest.
Under that strain, debt servicing now consumes nearly 70 percent of government revenues, far exceeding the 30 percent benchmark often cited by the IMF for developing economies.
Broader efforts, IMF engagement, and risks ahead
Beyond the yuan conversion, the Ruto administration has adopted a revised debt management approach aiming to smooth maturities and ease pressure on public coffers.
It has also begun securitisation of revenue streams to raise financing for priority growth-oriented infrastructure.
Mbadi noted that the government remains reliant on concessional borrowing and external support, especially from multilaterals like the IMF and World Bank.
A team from the IMF is currently in Nairobi for negotiations on a new program to replace the one that expired in April.
“We need the IMF,” he told reporters, acknowledging that while economic conditions have improved, concessional credit remains indispensable.
Still, the government faces significant challenges.
Debt levels at or above 70 percent of GDP raise questions of sustainability, particularly in light of Kenya’s reliance on dollar-denominated debt and tight fiscal space.
The conversion of the Chinese railway loans is one step to easing the tax burden on Kenyans, but analysts say it is no panacea.
As Kenya continues to borrow — domestically and externally — it must maintain a delicate balance among investment, debt service, and revenue mobilisation.
But moreso, the government must be able to shield it’s citizens from high interest rates that may lead to pushing the burden to taxpayers.
