The Treasury has confirmed that it is in talks with the Chinese government to reduce the amount of money that the government will pay as loan repayment for the construction of the Standard Gauge Railway.
To achieve this, Kenya is in talks with China to convert the dollar-denominated railway loan into Chinese yuan, an aide to the Treasury Minister John Mbadi told Reuters on Wednesday.
Kenya entered into a USD 5 billion (Ksh 646.2 billion) agreement with China to fund and construct the Standard Gauge Railway (SGR), one of the largest Chinese-backed infrastructure projects in the continent.
According to Bloomberg, plans to convert the loan into Chinese yuan surfaced on Wednesday, with reports indicating that the move would save Kenya money by tapping into lower interest rates in China compared to those in the United States.
The government has been working to reduce its debt burden, with both investors and the International Monetary Fund (IMF)warning that Kenya remains at a high risk of debt distress.
Last year, the government's attempts to raise taxes through the 2024 Finance Bill as part of measures to improve its fiscal position triggered by the destructive protests. This forced President William Ruto to dissent from the Bill and backtrack on some proposals.
Since then, the government has sought alternative ways to create fiscal space, with debt restructuring and currency conversion deals emerging as possible relief measures.
Impact on Shilling
Kenya’s repayment of the SGR loan is currently in US dollars, meaning the government must constantly buy large amounts of dollars from the market to meet repayment obligations. This creates extra demand for dollars, pushing up the exchange rate and weakening the shilling.
If Kenya converts the loan into Chinese yuan, the repayment shifts from dollars to yuan. This is likely to reduce the Dollar demand as Kenya will no longer need to purchase as many dollars from its reserves to service the loan.
This move could also strengthen Kenya’s forex position. With reduced pressure on dollar reserves, the Central Bank will be able to preserve more foreign exchange, improve import cover, and boost investor confidence.
It would also support shilling stability. Lower demand for dollars means the shilling faces less depreciation pressure, helping to stabilise the exchange rate. This stability is critical in managing import costs, curbing inflation, and ensuring overall economic predictability.
1 Chinese yuan currently trades at approximately Ksh17.99.
The Kenyan shilling is currently strengthening against the US dollar. After depreciating to around Ksh161 in early 2024, it has since appreciated significantly, stabilising near Ksh129 in 2025, a recovery of over 14 per cent year-on-year, according to official statistics from CBK.
Economist and State House Senior Advisor David Ndii and CBK also noted that this turnaround has been driven by sharply improved foreign reserves (now covering over 4 months of imports), robust diaspora remittances, and sound monetary policy.
