Kenya lowers interest rates by converting $3.5 billion in Chinese loans into yuan
Kenya’s Finance Minister John Mbadi announced on Tuesday that the country had finished changing three Chinese railway construction loans denominated in dollars into yuan to reduce interest payments.
According to Mbadi, the swap will save the nation almost $215 million annually by allowing the variable, dollar-based interest rates on the three loans from China Exim Bank to fall into their lower, yuan-based rates.
Mbadi told reporters at a conference, “It kicks off immediately and it is a saving in our fiscal space,” but he did not specify how much of the outstanding loan amounts had been changed.
In order to build a modern railway line from the port city of Mombasa to a station close to the Rift Valley town of Naivasha in the interior, the East African country took out three loans totaling $5 billion in 2014 and 2015.
According to data from the finance ministry, the total amount of outstanding debts as of June of last year was $3.5 billion. Regarding the currency change, China has remained silent.
In addition to the financial respite, Kenyan officials say the currency change was necessary since the East African country’s debt is mostly in US dollars, which puts the government at more risk from interest rate and currency fluctuations.
According to government sources, around 68% of Kenya’s external debt is in US dollars.
In an effort to make repayments easier, President William Ruto’s administration has been working to reduce its total debt, which is about 70% of GDP.
To ease the strain on public coffers and level out the maturity curve, the government has redesigned its debt management plan.
It has also been turning to securitisation of revenue to obtain financing for vital projects like the extension of the railway from Naivasha to the Ugandan border, and the upgrade of its main airport in Nairobi.
After the last program funded by the International Monetary Fund ended in April, a team from the Fund is presently in Kenya to discuss a new one.
The discussions were going well, according to Mbadi.
His words, “We need the IMF,” “Yes, our economic conditions have improved but we must not lose sight that we need more concessional loans and they come from multilaterals like the IMF and the World Bank.”
