Kenya’s Loan, Eurobonds Action Reduce Interest Burden – Note
Kenyan government decisions to restructure China’s loan and buy back Eurobonds, as well as monetary policy rate cuts, are expected to reduce the country’s interest burden, Moody’s Ratings said in a commentary note.
Kenya’s Finance Minister John Mbadi announced that the government had converted approximately $3.1 billion in loans from the Export-Import Bank of China (A1 stable) related to the Standard Gauge Railway (SGR) from US dollars into Chinese yuan (RMB).
Although the conversion does not affect the principal outstanding, the government will benefit from a lower interest rate on the RMB-denominated loan.
While the lower interest payments will have only a modest impact on debt affordability, the move coincides with a wider decline in Kenya’s domestic borrowing costs and renewed access to the Eurobond market, reinforcing efforts to reduce its interest burden and improve its debt maturity profile.
China is Kenya’s second-largest creditor, and repayments to its Export-Import Bank have placed considerable pressure on Kenya’s foreign reserves. In 2024 alone, Kenya’s principal and interest payments to EXIM Bank of China were $780 million.
The loan conversion is expected to generate annual savings of approximately $215 million (equivalent to 0.2% of GDP or 1% of government revenue), reducing annual amortizations on these restructured loans.
The conversion comes as Kenya’s domestic borrowing costs continue to decline. The Central Bank of Kenya recently cut its benchmark lending rate for the eighth time, lowering it to 9.25% from 13% in June 2024.
The easing cycle has contributed to a sharp reduction in Treasury bill yields, with the 91-day T-bill rate falling to around 8% by September 2025 from more than 16% in mid-2024.
Yields on 10-year Treasury bonds have also declined, to about 13.5% in September from 17% in October 2024. These developments reflect improved liquidity conditions and a more accommodative monetary stance, which are helping reduce the cost of domestic financing
Kenya has demonstrated improved access to the Eurobond market, returning to the bond market in October to buy back part of the 2028 maturity.
The transaction delays the next large eurobond maturity to 2030, easing near-term refinancing risks and smoothing external debt service.
Kenya’s ability to tap international capital markets, combined with declining local interest rates and targeted concessional financing, signals a more diversified and proactive approach to debt management with over $5.1 billion in eurobond maturities due over the next 15 years.
The government’s fiscal 2025-26 Annual Borrowing Plan outlines a financing strategy that incorporates a gross borrowing mix of 25% external and 75% domestic, and a net composition of 35% external and 65% domestic.
The plan includes several large financing items that are yet to be secured; a proposed $1 billion debt-for-food swap with the World Food Programme and a sustainability-linked bond.
The government is also counting on disbursements from the World Bank’s Development Policy Operation. However, realizing these external financing items remains subject to the successful implementation of key reforms – such as the rollout of electronic government procurement and the Treasury Single Account – and maintaining investor confidence.
Domestically, the borrowing strategy prioritises the issuance of medium- and long-term Treasury bonds, complemented by infrastructure bonds and liability management operations (including buybacks and switches) to smooth the redemption profile and reduce refinancing risk. MTN Nigeria Rallies Amidst Strong Earnings Expectations
