Kenya has completed the conversion of three dollar-denominated railway construction loans from China into yuan to reduce interest payments, Finance Minister John Mbadi announced on Tuesday.
The currency swap, which shifts the floating, dollar-based interest rates on the three loans from China Exim Bank to lower yuan-based rates, is expected to save the country about $215 million annually, Reuters reported.
“It kicks off immediately and it is a saving in our fiscal space,” Mbadi told reporters at a briefing, without specifying the outstanding amounts of the converted loans.
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The East African nation had originally borrowed three loans totaling $5 billion in 2014 and 2015 to construct a modern railway line from the port city of Mombasa to a station near the Rift Valley town of Naivasha.
As of June last year, the outstanding loans stood at $3.5 billion, according to figures from the finance ministry.
China has not issued any comment on the currency switch. Kenyan officials said the decision to switch currencies was also driven by the country’s heavy reliance on dollar-denominated debt, which exposes the government to higher currency and interest rate risks.
About 68% of Kenya’s external debt is denominated in dollars, according to government sources.
President William Ruto’s administration has been seeking to reduce the country’s overall debt, which approaches 70% of gross domestic product, to make repayments more manageable.
The government has revamped its debt management strategy to smooth out the maturity curve and ease pressure on public finances.
It has also turned to revenue securitisation to fund key infrastructure projects, including the extension of the railway from Naivasha to the Ugandan border and upgrades to Nairobi’s main airport.
A team from the International Monetary Fund is currently in Kenya for discussions on a new Fund-supported programme following the expiry of the previous one in April.
“We need the IMF,” Mbadi said. “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.”
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Image Credit: Reuters
