Kenya has opened negotiations with China to restructure a $5 billion loan for its high-speed railway by converting the debt from U.S. dollars into Chinese yuan. According to Reuters, the move is aimed at cutting borrowing costs and easing fiscal pressure, as interest rates on yuan-denominated loans are lower than those tied to the dollar.
The talks come as Nairobi grapples with rising debt servicing costs, which have strained public finances and sparked widespread protests over earlier tax hike proposals. According to Reuters, converting part of its external debt into yuan would also reduce Kenya’s exposure to dollar volatility, which has added to repayment challenges in recent years.
In a parallel effort to diversify its borrowing sources, Kenya signed a yen-denominated loan deal with Japan during the Tokyo International Conference on African Development (TICAD). According to Reuters, the agreement is backed by Japan’s NEXI insurer and is expected to fund infrastructure projects under more favorable terms than traditional dollar borrowing.
Economists say the move underscores Kenya’s shifting financing strategy toward Asian currencies, aligning with broader global trends as countries seek to reduce reliance on the dollar. According to Reuters, investors are closely monitoring the talks with Beijing, as the outcome could influence Kenya’s debt sustainability outlook and investor sentiment.
Analysts also note that successful restructuring could free up fiscal space for priority investments in infrastructure and social programs, while signaling Kenya’s willingness to embrace innovative debt management solutions. According to Reuters, this could help restore investor confidence and stabilize the shilling in the medium term.
