Kenya has successfully renegotiated the terms of its multi-billion shilling Standard Gauge Railway (SGR) loans with China, pushing the final repayment date from 2035 to 2040. The deal, confirmed by the National Treasury, provides significant financial breathing room for a government grappling with debt servicing costs that consume more than half of its revenue.

This restructuring is a critical lifeline for the Kenyan taxpayer. The revised terms provide immediate relief by cutting annual repayment costs from about KES 50 billion to KES 37 billion, freeing up vital funds that can be channeled towards essential services and development projects. The agreement introduces a 15-year repayment facility starting this year, which includes a five-year grace period where Kenya will only service interest, not the principal amount.

A Strategic Currency Shift

A central component of the new deal is the conversion of the three dollar-denominated loans into Chinese Yuan. This move is expected to save the country around $215 million (approx. KES 27.7 billion) annually. National Treasury Cabinet Secretary John Mbadi noted that this diversification reduces Kenya's exposure to the volatility of the US dollar, in which 52% of the country's external debt was denominated as of September.

The original loans, totaling KES 655 billion ($5.08 billion), were secured from the China Exim Bank starting in 2015 to fund the construction of the railway from Mombasa to Naivasha. The previous terms, with maturities between 2029 and 2035, had placed a significant strain on public finances.

The Bottom Line

The renegotiation offers a tactical advantage in managing the country's overall public debt, which stands at nearly 70% of GDP. While the extension provides short-term relief, analysts emphasize the need for sustainable economic growth to manage the long-term burden of the SGR, a project whose profitability has been a subject of intense public debate. Key details of the new agreement include:

• New Repayment Deadline: 2040
• Grace Period: A five-year exemption on principal repayments.
• Currency: Loans converted from US Dollars to Chinese Yuan.
• Annual Savings: An estimated $215 million (KES 27.7 billion).

This debt restructuring is part of a wider government strategy to create fiscal space, which includes refinancing Eurobonds and seeking alternative financing models. As one Treasury official stated, the goal is to make the debt load more manageable as Kenya navigates a challenging global economic environment.