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IMF forced Kenya to swap SGR dollar loans for yuan
President Ruto's government has been trying to cut its overall debt, which stands close to 70 percent of gross domestic product, to make repayments more manageable.
Powerful Western lenders led by the World Bank and the International Monetary Fund (IMF) forced Kenya to convert dollar-denominated standard gauge railway (SGR) debt into yuan after concerns that the creditors' cash was being channelled to China.
President William Ruto’s top economic advisor, David Ndii, said the multilateral lenders were disturbed over the use of their dollar loans to pay China instead of supporting the country’s budget and infrastructure projects.
Kenya last month completed converting three dollar-denominated loans from China into yuan, with the Treasury saying it would save the country about $215 million a year on interest payments.
The swap, which allows the floating, dollar-based interest rates across the three loans from China Exim Bank to drop into their lower, yuan-based rates.
The US dollar attracted interest of more than 6.0 percent compared to 3.0 percent for the yuan facility, said the Treasury.
But Dr Ndii has revealed a hidden hand behind the swap.
“The Western lenders queried why they should be supporting us while other lenders are taking out the money,” Dr Ndii told the Business Daily in an interview.
“That’s why they put pressure on countries to restructure debts so that the money they put in stays in the country and does not go to pay other lenders.”
Kenya borrowed $5.08 billion (Sh656.54 billion) from China Export-Import Bank (Exim) for the construction of two phases of the SGR.
The first phase of the modern railway from the port city of Mombasa to Nairobi received two facilities of $1.6 billion (Sh206.78 billion) and $2 billion (Sh258.94 billion), while the second, connecting the capital city to Naivasha, took up $1.48 billion (Sh191.63 billion).
The loans were dollar-denominated and had floating interest rates reportedly set at 3.6 percent or 3.0 percent above the average London Interbank Offered Rate (Libor) -a global benchmark retired in June 2023 and replaced by SOFR and other alternative reference rates.
Treasury Cabinet Secretary John Mbadi said that in US dollars, the interest cost comes to more than 6.0 percent (about 4.6 percent SOFR plus 2.0 percent). “But with renminbi it is about 3.0 percent,” he said.
The country pays interest on the SGR loans every six months in January and July.
The Treasury has a budget of Sh129.90 billion towards repayment of loans contracted from China this financial year ending June 2026, comprising Sh95.64 billion in principal and Sh34.26 billion in interest costs. A large share of these repayments is for the SGR debt.
China has not lent additional funds to Kenya beyond the SGR facilities, easing the Beijing debt.
Multilateral lenders, including the World Bank and the IMF, have meanwhile intensified lending to Kenya in recent years, strengthening their hands in influencing Kenya’s policies.
Treasury data through September 2025 shows outstanding loans due to China have fallen by 18.8 percent over the past five years to Sh620.3 billion from Sh764.2 billion in September 2021.
Borrowings from the IMF have risen at the fastest rate of 164.2 percent from Sh180.6 billion in September 2021 to Sh477.2 billion in September 2025.
Outstanding balances due to the World Bank (IDA) and sovereign (Eurobonds) have grown by 51.8 percent and 30.3 percent respectively to Sh1.66 trillion and Sh1.022 trillion respectively.
“If you look at the net position of external lenders, the World Bank position is positive, so is the IMF, but China’s position is negative in that they are putting in less money than they are getting out,” Dr Ndii added.
“The lenders say that our money is going to pay China. Multilaterals and other Western lenders, over the last couple of years, have been putting in money but the markets and China have been taking out money.”
Kenya—classified by the IMF as at high risk of debt distress—has been taking steps to tackle its loans since State finances came under severe pressure in 2024, when anti-government protests forced the administration to withdraw the Finance Bill with Sh345 billion in new taxes.
President Ruto's government has been trying to cut its overall debt, which stands close to 70 percent of gross domestic product, to make repayments more manageable.
The government has revamped its debt management strategy to smooth out its maturity curve and lighten the pressure on public coffers.
It has also been turning to securitisation of revenue to raise funds for key projects like the extension of the railway from Naivasha to the Ugandan border, and the upgrading of the main airport in Nairobi.
The currency swap on the SGR loans forms part of the country’s debt management, which seeks to diversify Kenya’s debt-currency mix, currently concentrated in dollars.
The proportion of external debt denominated in US dollars at the end of September was 52 percent, 27.9 percent for the euro, 12.3 percent for yuan, 5.2 percent for the yen and 2.5 percent for the British Pound.
A negligible 0.2 percent of Kenya’s debt was denominated in other currencies, including the Danish kroner, Kuwait dinar, Korean won, Indian rupee, Canadian dollar, Saudi riyal, Swedish kroner and the Emirati dirham.
Kenya has stepped up its debt management operations in 2025 by further undertaking early repayments due in 2027 and 2028 Eurobonds, pushing out expected sizeable maturities on external debt to at least 2031.
Domestically, the Exchequer has targeted similar early buybacks alongside switch bonds to ease pressure on maturities.
The country is expected to deploy multiple strategies to acquire yuan to pay for the SGR loans, including seeking currency swaps with China using Kenyan shilling.
