Kenya is in advanced talks with China to restructure its Standard Gauge Railway (SGR) loan by converting repayments from the US dollar to the Chinese yuan, a move that could significantly ease pressure on the shilling and improve the country’s debt sustainability.
An aide to Treasury Cabinet Secretary John Mbadi confirmed the discussions on Wednesday, noting that the conversion could allow Kenya to benefit from lower interest rates in China compared to those in the United States. Kenya borrowed about USD 5 billion (Ksh 646.2 billion) from China to fund the SGR, one of Africa’s largest infrastructure projects backed by Beijing.
According to Bloomberg, the restructuring plan surfaced this week as part of broader government efforts to manage rising debt obligations. Both the International Monetary Fund (IMF) and investors have repeatedly warned that Kenya remains at a high risk of debt distress, especially after last year’s controversial 2024 Finance Bill sparked mass protests against new tax measures. President William Ruto was forced to backtrack on several proposals, pushing the government to seek alternative ways to create fiscal space.
Currently, Kenya services the SGR loan in dollars, a process that requires the Central Bank to purchase large amounts of the currency, fueling demand and weakening the shilling. Converting repayments into yuan would ease dollar demand, reduce exchange rate volatility, and help preserve foreign reserves. Economists argue that such a shift could strengthen Kenya’s forex position, improve import cover, and boost investor confidence.
The timing is critical, given that the shilling has staged a remarkable recovery. After plunging to Ksh161 per dollar in early 2024, it has since appreciated to about Ksh129 in 2025 a 14 percent year-on-year rebound. Central Bank of Kenya (CBK) data attributes the recovery to robust diaspora remittances, sound monetary policy, and foreign reserves now covering more than four months of imports.
With the yuan currently trading at Ksh17.99, analysts believe the conversion could help stabilize debt repayment costs while supporting overall macroeconomic stability. However, successful negotiations with Beijing will determine how soon Kenya reaps the benefits of this potential relief measure.
