Kenya will now repay its Standard Gauge Railway (SGR) loan using Chinese Yuan, away from the traditional payment where the country repaid the debt using the Dollar, in a bid to cut costs.
The government, through the Treasury, on Tuesday completed the conversion of the Ksh646.15 billion (USD5 billion loan) owed to China from dollars to the Yuan to save on interest payments, according to CS John Mbadi.
The conversion, which allows the higher Dollar-based interest rates on the two tranches of the loan to drop, will save Kenya about Ksh27.78 billion (USD215 million) a year, according to Reuters.
According to the Treasury, the decision to switch the currency of the loan to the Yuan will help reduce the pressure Kenya has been facing in honouring its debt obligations.
Kenya entered into the USD 5 billion (Ksh646.2 billion) agreement with China to fund and construct the Standard Gauge Railway (SGR), one of the largest Chinese-backed infrastructure projects on the continent, in 2013.
Meanwhile, the decision will now see the government constantly shift from buying large amounts of dollars from the market to meet repayment obligations.
This will create a reduction in the demand for dollars, pushing down the exchange rate and strengthening the shilling, according to experts.
Additionally, this move could also strengthen Kenya’s forex position. With reduced pressure on dollar reserves, the Central Bank of Kenya will be able to preserve more foreign exchange, improve import cover, and boost investor confidence.
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.
Panic as 33-Seater Bus Plunges Into River Breaking News
