Kenya in talks with China to convert dollar loans into yuan in bid to ease fiscal pressure

Kenya is negotiating with China to convert part of its dollar-denominated loans into yuan and extend repayment terms.

• Kenya is negotiating with China to convert some dollar-denominated loans into yuan and extend repayment terms.
• The country spends $1 billion annually servicing debt to China, its largest bilateral creditor.
• A shift from dollar to Yuan payments may reduce interest costs by half and extend repayment tenures.
• Kenya's external debt was $40.5 billion as of March, including obligations to the World Bank, eurobond investors, and China.

Kenya is negotiating with China to convert part of its dollar-denominated loans into yuan and extend repayment terms, in a bid to ease pressure on state finances, Treasury Secretary John Mbadi said.

The East African nation spends about $1 billion annually servicing its debt to China, its largest bilateral creditor.

Switching repayment from dollars to China’s Yuan could slash interest costs by almost half, while lengthening the tenor would free up much-needed fiscal space, Mbadi said.

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Payments on loans from the Export-Import Bank of China are expected to account for roughly a quarter of external debt servicing in the fiscal year through June 2025, Bloomberg reported.

As of March, Kenya’s external debt stood at $40.5 billion, of which $14.4 billion was owed to the World Bank, $7.52 billion to eurobond investors, and $5.04 billion to China, Treasury data show.

The country, which the International Monetary Fund classifies as at “high risk” of debt distress, has been struggling with mounting repayment obligations and sluggish revenue collection.

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Fiscal space remains tight

The fiscal crunch worsened in 2024 when mass protests forced President William Ruto’s administration to abandon planned tax hikes.

Public finances remain under strain due to arrears to suppliers, carryover spending from previous fiscal years, and the heavy burden of external borrowing for infrastructure.

Kenya, seeking to ease strained public finances, is turning to its citizens abroad with plans to issue a diaspora bond worth between $250 million and $500 million.

The government hopes to raise as much as $3.8 billion through the program, according to Prime Cabinet Secretary Musalia Mudavadi.

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