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China-Africa relations
ChinaDiplomacy

Kenya’s plan to switch debt payments to China from US dollars to yuan is a ‘win-win’

The move could set a new precedent, reducing Nairobi’s reliance on US currency while meeting Beijing’s goal of increased trade deals in yuan

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Kenya has announced plans to repay its debt to China in renminbi rather than US dollars, strengthening its economic ties with Beijing. Photo: SCMP
Jevans Nyabiage
Kenya’s plan to convert its US dollar-denominated Chinese debt to yuan is a “win-win”, as it is expected to reduce interest payments for the African nation while advancing China’s goal of increasing the global use of its currency, according to analysts.
The deal would be precedent-setting and could establish a new rule book for future debt restructuring and possibly cut reliance on the US dollar.

In late August, Kenya’s Treasury announced that talks with the Export-Import Bank of China were at an advanced stage to extend maturities and swap dollar-denominated debt into yuan to ease pressure on its foreign reserves.

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If successful, it would see interest rates on the loans secured for the Standard Gauge Railway (SGR) halve from 6.37 per cent under existing dollar-denominated loan terms.

The East African nation had in 2014 and 2015 secured two loans worth about US$5 billion (35 billion yuan) to build the 480km-long (298-mile) Standard Gauge Railway line connecting the port city of Mombasa with the capital city of Nairobi and a 120km extension to Naivasha in Central Rift Valley.
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According to Kenyan Treasury Minister John Mbadi, the interest rate on the loans would drop from more than 6 per cent in US dollars to about 3 per cent in yuan due to the difference between the secured overnight financing rate (4.6 per cent) and yuan rates.

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