Kenya Seeks to Reprofile $5 Billion Chinese Loan to Ease Debt Burden
In a bid to alleviate pressure on its foreign exchange reserves, Kenya is seeking to reprofile a $5 billion loan it borrowed from China to construct its modern railway. According to the country’s finance minister, who spoke to Reuters on Wednesday, the move is expected to ease the financial strain on Nairobi’s forex reserves.
Kenya spends a significant amount – nearly $1 billion annually – on debt service to China, which has been a substantial strain on the country’s finances. The loan in question was used to fund the construction of the Standard Gauge Railway (SGR), a key component of a regional connectivity project that spans from the port of Mombasa to Naivasha in central Kenya.
Kenya’s debt servicing costs have skyrocketed since 2022, driven by higher interest rates and a strong US dollar. While it is unclear whether the East African country has sought to convert any other dollar-denominated loans, the finance minister’s statement signals a clear intention to renegotiate its debt obligations with China.
As of the end of March, Kenya’s external debt stood at $40.5 billion, with $14.4 billion owed to the World Bank, $7.52 billion to eurobond investors, and almost $5.04 billion to China, according to Treasury data. The International Monetary Fund (IMF) has flagged Nairobi as being at high risk of debt distress, underscoring the urgent need for Kenya to restructure its debt obligations.
The proposed loan reprofiling is seen as a critical step towards reducing Kenya’s debt burden and freeing up resources for other pressing development priorities. However, it remains to be seen whether China will agree to the proposal, and what implications this might have for Kenya’s broader economic and diplomatic relations with Beijing.
