Kenya has accumulated sufficient Chinese currency to service yuan-denominated debt after converting three dollar loans into renminbi, according to a senior government official.
The East African nation last year became the first on the continent to switch dollar loans from China into yuan, eliciting a warning from the International Monetary Fund that such swaps introduce fresh currency risks despite lowering borrowing costs.
The currency needed to service the loans from China, which were used to construct a railway, "will be available without any headache," said Raphael Owino, director general of the Public Debt Management Office. "In any case, the amount has reduced, so there is no pressure in terms of where you are generating the yuan."
The government has a four-year grace period during which it will only pay interest on the loans, which will help lower its debt burden, Owino told reporters in the capital, Nairobi, Wednesday.
Kenya has been grappling with rising indebtedness and revenue has undershot expectations, with the IMF warning that the country is at high risk of debt distress. The government spends roughly $1 billion a year servicing its loans from China, its largest bilateral creditor.
About $3.5 billion remained outstanding on the railway loans as of June 2024.
The switches will save Kenya $215 million annually, with interest rates on the yuan loans dropping to as low as 3%, "as opposed to a very high rate" on the dollar debt, according to Owino.
The maturity date on one of the three loans was retained at 2029. The other two were due to be repaid in 2034 and 2036, but those dates have been pushed out into the 2040s, Owino said without giving details.
"The fine print is something that we have not been sharing, because it is a transaction that was done at government-to-government level," he said.
The country owed 7.26 billion yuan by June 2024, according to Treasury data.
Kenya's loan switch set a precedent for other emerging markets. Ethiopia is in talks to convert part of the $5.38 billion it owes Beijing into yuan as it restructures debt after defaulting on $1 billion of eurobonds.
Zambia, the first African country to default after the pandemic, is following suit and has allowed Chinese mining companies pay taxes in yuan. Sri Lanka defaulted in 2022 and last year announced it would take a yuan-denominated loan equivalent to $500 million for a highway project.
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