Why Kenya’s swap of dollar loans for Chinese yuan offers more than debt relief

Kenya has converted its US dollar-denominated railway loans from China into the Chinese yuan, not only securing debt relief but also fitting into Beijing’s long-term goal of internationalising its currency.

Analysts said the decision, announced by Kenya last week, paved the way for other debt-stressed African countries and could ultimately draw them closer to China.

Kenyan Treasury Minister John Mbadi said on Tuesday that the country’s US$5 billion Chinese railway loans had been converted to Chinese yuan, in a move expected to cut annual debt-servicing costs by US$215 million.

Kenya took three loans worth US$5 billion from the Export-Import Bank of China (China Exim Bank) in 2014 and 2015 to build the 600km (373-mile) Standard Gauge Railway (SGR) from the port city of Mombasa to Naivasha, a town in the Rift Valley just outside the capital Nairobi.

Treasury data shows about US$3.5 billion of the loan remained unpaid as of June 2024, with Kenya spending US$1 billion annually on servicing its Chinese debt.

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Mbadi did not reveal the new yuan loan’s terms, including its interest rate. However, he had said in August that the deal was expected to halve the SGR loan rates from the existing 6.37 per cent under the dollar-denominated agreement.

South China Morning Post