Kenya has entered discussions with China to restructure part of its external debt by converting dollar-denominated loans into yuan and extending repayment terms, in a move aimed at easing fiscal pressures, Treasury Secretary John Mbadi confirmed.
Nairobi spends nearly $1 billion annually servicing loans from China, its largest bilateral creditor.
By shifting repayment from the U.S. dollar to China’s yuan, the government expects to cut interest costs by as much as half while securing longer repayment tenures, freeing up resources for critical spending.
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Payments to the Export-Import Bank of China are projected to account for about a quarter of Kenya’s external debt servicing in the fiscal year ending June 2025, Bloomberg reported.
As of March, the country’s external debt stood at $40.5 billion, including $14.4 billion owed to the World Bank, $7.52 billion to eurobond holders, and $5.04 billion to China, Treasury data show.
Kenya’s debt vulnerability has been flagged repeatedly by the International Monetary Fund, which classifies the country as being at “high risk” of distress.
Mounting repayment obligations, coupled with sluggish revenue collection, have compounded the strain on public finances.
The fiscal squeeze deepened in 2024 after mass protests forced President William Ruto’s administration to abandon tax hikes, widening the budget gap.
The government continues to grapple with arrears to suppliers, carryover spending from previous fiscal cycles, and heavy borrowing for infrastructure projects.
To diversify its funding sources, Kenya is also turning to its diaspora community with plans to issue a bond worth between $250 million and $500 million, with the goal of eventually raising up to $3.8 billion, Prime Cabinet Secretary Musalia Mudavadi announced.
The ongoing negotiations with Beijing reflect Kenya’s urgent search for fiscal breathing space as it confronts the dual challenges of high debt servicing and a volatile global economic environment.
