Kenya cuts debt burden with yuan conversion of loans

Kenya slashes debt costs by switching $3.5B Chinese loans to yuan

African Nations' Yuan Strategies

African countries are seizing opportunities to shift their debt into China's currency: In October last year, Kenya converted $3.5 billion in loans from Chinese creditors into yuan, restructuring railway financing originally worth $5 billion from the Export-Import Bank of China.

A key development: The Chinese lender halved the interest rate, saving the East African nation around $215 million annually, according to Finance Minister John Mbadi.

Ethiopia is now negotiating a similar move, aiming to convert roughly $5.4 billion of its Chinese debt into renminbi—a step that would cut interest costs from the current 7.25% to just 3%. The International Monetary Fund has already deemed Ethiopia's debt burden "unsustainable" after the country defaulted on a Eurobond interest payment in December 2023.

Zambia has gone even further. As the first African nation to do so, the continent's second-largest copper producer began officially accepting China's currency for tax and licensing fees from the mining sector in October. The central bank confirmed that Chinese mining firms may now settle part of their tax obligations in renminbi.

These debt restructurings come amid soaring interest burdens. Kenya's railway loans initially carried variable rates of 3% and 3.6% above U.S. market rates. When repayment grace periods expired in 2019 and 2020, total interest reached about 4%. By 2023, those costs had more than doubled.

Kenya's debt crisis was exacerbated by a strong U.S. dollar and Federal Reserve rate hikes. Between 2013 and 2023, the East African nation nearly doubled its public debt relative to GDP.

For China, these debt conversions are part of a long-term strategy to internationalize the renminbi. Since the global financial crisis, Beijing has pursued a gradual, state-directed approach—first establishing the currency in cross-border trade, then developing offshore and reserve markets, and now adding bilateral debt swaps.

Yet the sustainability of this currency shift hinges on whether African nations can earn enough yuan through exports to China.

Kenya faces significant hurdles. In 2023, its exports to China totaled just $200 million, while imports from China reached $3.2 billion. To service its yuan-denominated debt, the country must either convert dollar revenues into yuan or dramatically boost exports to China.

In June 2025, the Central Bank of Kenya reported that the yuan accounted for 5% of its official foreign exchange reserves. The U.S. dollar still dominated at 59.7%, followed by the euro at 27.3%. Kenya's major exports—tea, coffee, avocados—and tourism revenues are all dollar-denominated. Remittances, another critical source of foreign exchange (totaling $2.78 billion in 2024), also come largely from the U.S., accounting for roughly half of inflows.