Kenya has devised means to save at most $215 million in interest payments every year in a new plan which was revealed by the Treasury Cabinet Secretary, John Mbadi.
According to Mbadi, Kenya has already converted three railway construction dollar-denominated loans, which were borrowed from China, into yuan to save 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.
“It kicks off immediately and it is a saving in our fiscal space,” Mbadi told journalists at a briefing, without providing a figure for the outstanding loan amounts that were converted.
Kenya borrowed three loans amounting to $5 billion in 2014 and 2015 for the construction of a modern railway line from the port city of Mombasa to a station near the Rift Valley town of Naivasha in the hinterland.
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The outstanding loans totaled $3.5 billion as of June last year, according to figures from the finance ministry. China has not commented on the currency switch.
Apart from the financial relief, Kenyan officials attribute the currency switch to the fact that the East African nation’s debt is concentrated in dollars, exposing the government to higher currency and interest rate risks.
About 68% of the stock of Kenya’s external debt is denominated in dollars, according to government officials.
President William Ruto’s government has been trying to cut its overall debt, which stands close to 70% of gross domestic product, in order 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 its main airport in Nairobi.
