The cost of servicing Kenya’s loans from China for the financial year ended June 30, 2025 fell by Sh23.33 billion amid a stable shilling and falling global interest rates, helping free up some cash for a government battling revenue shortfalls.
Treasury documents show Nairobi paid Chinese lenders Sh129.35 billion for loans contracted to build a modern railway and other infrastructure projects compared with Sh152.69 billion for the year ended June 2024.
The rare drop in debt obligations to Beijing, the first since pandemic year 2020/21, came in a period the shilling remained stable against the US dollar while interest rates eased globally, as central banks cut rates on falling price pressures.
The payment towards principal sums fell 11.80 percent to Sh88.61 billion while obligations towards interest were 21.99 percent lower to Sh40.74 billion from Sh52.20 billion. The bulk of the debt payments were wired to Exim Bank of China, which funded the construction of the standard gauge railway (SGR).
The loans are dollar-denominated and have two floating interest rates which were 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 Secured Overnight Financing Rate (SOFR) and other alternative reference rates.
SOFR, which reflects the overnight borrowing costs for assets secured by US Treasury securities, fell to about 4.32 percent in January 2025 from 5.32 percent in the same month of prior year. The Kenyan currency, on the other hand, averaged 129.87 units against the US dollar between July 2024 and January 2025 when the loans to China were paid compared with 149.52 units during the same time a year earlier.
The terms of loans from China are usually confidential and require borrower countries such as Kenya to prioritise the repayments over other creditors, according to AidData, a US research laboratory at the College of William & Mary in the US, which tracks activities by Chinese lenders.
“Chinese loan contracts contain unusually restrictive confidentiality clauses,” AidData researchers wrote in their report.
“Although foreign loan contracts often limit the types of information that creditors can disclose, Beijing’s policy banks (China Eximbank and China Development Bank) impose confidentiality obligations on sovereign borrowers, which makes it more difficult for taxpayers to understand the debts that they are ultimately responsible for repaying.”
The Treasury data further shows Kenya had budgeted to spend Sh148.04 billion in servicing the China loans at the beginning of the fiscal year in July 2024 but ended up spending only Sh129.35 billion, resulting in savings of Sh18.69 billion. The savings came from lower repayments of principal and interest.
Director-General for Public Debt Management Office at the Treasury Raphael Otieno did not immediately respond to questions on the dollar conversion rate applied and interest rate used. But an official at the Treasury, who is not allowed to speak on behalf of the department, said the reduced payments were a result of “stronger shilling and revised interest rate in line with global trend”.
The payments were largely wired to State-owned Exim Bank of China after Kenya fully repaid debts owed to China Development Bank in the fiscal year ended June 2023.
Exim Bank of China funded about 90 percent of the more than Sh500 billion Kenya spent on building the nearly 700 kilometres of the SGR from the port city of Mombasa to Suswa near Naivasha —nearly 100 kilometres northwest of the capital Nairobi.
The SGR funding was in addition to other loans Kenya took to construct some of its roads and other infrastructural projects.
“Although the repayment of the SGR loans has been onerous, there should have been far greater concern about the railway’s inflated construction costs and its consistent failure to generate revenue despite government intervention to mandate cargo traffic,” Fergus Kell, a research fellow at London-based Chatham House, wrote in a past note.
“This is a legacy of poor Kenyan decision-making and a planning process driven more by short-term electioneering than strategic need. Chinese lending was one component of a surge in borrowing under the [Uhuru] Kenyatta administration.”
Kenya under the administration of Mr Kenyatta largely took loans from China to build roads, bridges, power plants and the SGR in a bid to spur economic activities and create jobs for the youth. That borrowing binge started around 2014 after Kenya became a lower-middle income economy, limiting her access to the highly concessional loans from development lenders such as the World Bank Group.
Kenya last inked a debt deal with Beijing in 2019, says a study by Boston University Global Development Policy Center —which runs the Chinese Loans to Africa (CLA) Database project.
At the time, Export-Import Bank of China committed to provide funding for Konza Data Centre and Smart City Facilities to the tune of $166.7 million (about Sh21.67 billion under prevailing conversion rate of Sh130 per dollar) and Kenya Power Transmission Expansion Project at a cost of $83.3 million (Sh10.83 billion).
Beijing grew fretful about Africa's debt vulnerability after pandemic shocks on revenues.
