Kenya is in talks with China \u2013 the East African country\u2019s biggest bilateral lender \u2013 to convert a dollar-denominated loan to fund a railway project into renminbi (also known as the Chinese yuan) as part of Kenya\u2019s drive to reduce the $1bn it spends annually on servicing its debt.<\/p>\n
Bloomberg first reported on the bilateral talks on August 20, following an interview in Nairobi with Treasury Secretary John Mdabi, who said discussions were expected to conclude soon, without elaborating.<\/p>\n
\u201cThe moment we move from US dollar to renminbi, automatically, the interest rate reduces by almost half,\u201d while adjusting the tenor of the loan would also be helpful, the minister told the news agency. \u201cTo us, that is a big saving.\u201d<\/p>\n
According to Treasury data cited by Bloomberg, of Kenya\u2019s $40.5bn in external debt at the end of March, it owed $14.4bn to the World Bank, $7.52bn to Eurobond investors and nearly $5.04bn to China.<\/p>\n
Mdabi said\u00a0the talks with China centre on loans Kenya took to build a $5bn high-speed standard-gauge railway (SGR), connecting the port city of Mombasa to Nairobi and onwards to Naivasha, a town about 90km northwest of the capital.<\/p>\n
Launched in 2017, the railway was built by the China Road and Bridge Corporation and financed largely through commercial and concessional loans from China\u2019s Exim Bank.<\/p>\n
The Kenya-China talks come as President William Ruto works to reduce his country\u2019s reliance on traditional foreign borrowing, including the now prohibitively expensive Eurobond market, instead turning to Asian lenders and a diversified bond market.<\/p>\n
Meanwhile, Kenya is at high risk of debt distress according to the International Monetary Fund (IMF), a classification in line with recent assessments by ratings agencies. Over the past 10 years, its total debt has quadrupled, in part owing to taking loans on big infrastructure projects, reaching $87.6bn in March, equivalent to 70% of GDP.<\/p>\n
Late last month, Fitch Ratings affirmed the country\u2019s Long-Term Foreign-Currency Issuer Default Rating (IDR) at \u2018B-\u2019 with a stable outlook. But it warned of weak revenue mobilisation and growing debt service obligations. Fitch projected that Kenya\u2019s fiscal deficit would reach 5.2% of GDP in FY26, exceeding both the government\u2019s target and the 3.6% median for similarly rated peers.<\/p>\n
Also in late July, Moody\u2019s said that Kenya\u2019s public debt servicing costs were projected to remain among the highest globally, as the government continued to rely heavily on local markets to fund budget deficits. Domestic investors \u2013 banks, pension funds and insurers \u2013 hold more than half of Kenya\u2019s public debt.<\/p>\n
As regards the SGR project loan, apart from lobbying China to convert the loan into yuan, Kenya hopes to generate $4bn by securitising a levy on imports, to finance a planned extension of the China-built railway<\/a> to Kisumu and Malaba, near the Ugandan border.<\/p>\n The railway development levy, charged at 2% on the value of imported goods, generates about KES 50bn ($387mn) annually. \u201cWe\u2019re seeking to allow securitisation of this levy and use it to raise funds,\u201d Transport Secretary Davis Chirchir told Bloomberg in an interview two weeks ago.<\/p>\n