Kenya cut annual repayments on Chinese loans by Sh21.61 billion in the financial year ended June 2026 after restructuring standard gauge railway (SGR) debts, easing pressure on the Exchequer as the country moved beyond the peak repayment period for Beijing-funded infrastructure projects.
Treasury data shows Kenya paid Sh107.74 billion to Chinese lenders in the year ended June 30, 2026, down from Sh129.35 billion a year earlier.
The payments were also Sh44.95 billion below the record Sh152.69 billion settled in the fiscal year ended June 2024, marking the second consecutive annual decline after repayments peaked.
The lower debt service bill of Sh107.74 billion came in a year when Nairobi secured a deal with Beijing to convert three dollar-denominated SGR loans into the Chinese renminbi, while also extending repayment maturities and obtaining additional grace periods to reduce annual repayment costs.
The restructuring replaced floating dollar interest rates linked to the Secured Overnight Financing Rate (SOFR) with fixed renminbi rates, shielding Kenya from elevated US interest rates that had pushed up the cost of servicing the railway debt.
“When the loan is in US dollars, then it is SOFR plus a mark-up, but in renminbi it is a fixed rate, which is almost half the rate if we were to apply US dollars. So there is a huge saving there,” Treasury Cabinet Secretary John Mbadi said in an earlier interview with this publication.
Mr Mbadi said the dollar loans were attracting interest rates of more than 6.0 percent, comprising prevailing SOFR plus a margin of roughly two percentage points, compared with about a three percent fixed rate under the renminbi financing.
The loans, contracted during former President Uhuru Kenyatta’s administration, had initially carried floating interest rates of between 3.0 and 3.6 percentage points above the now-retired London Interbank Offered Rate (Libor), exposing Kenya to rising global borrowing costs after benchmark rates rose in recent years.
Treasury figures show Kenya paid Sh74.74 billion in principal and Sh33 billion in interest to Chinese lenders in the 2025/26 fiscal year, compared with Sh88.61 billion and Sh40.74 billion, respectively, a year earlier.
The latest repayments indicate that Kenya has passed the most demanding phase of servicing Chinese infrastructure loans whose principal repayments have accelerated.
China remains Kenya’s largest bilateral lender, having financed the nearly 700-kilometre SGR from Mombasa to Suswa near Naivasha alongside roads, ports and energy projects. The Export-Import Bank of China financed about 90 percent of the railway’s initial construction cost of $3.75 billion (about Sh485.63 billion), excluding interest.
Servicing the SGR loans —paid every January and July— remains one of the biggest external debt obligations, accounting for more than three-quarters of Kenya’s annual repayments to bilateral creditors.
The easing in annual repayments, however, has not resolved long-running challenges surrounding the railway’s financing model.
The Treasury disclosed that it was negotiating with Beijing to revise escrow account terms tied to the SGR loans after the arrangement prevented operating revenues generated by the railway from being used to service the debt.
Under the financing agreement, all SGR revenue is deposited into a special account jointly managed by the Kenya Railways Corporation (KRC) and the Export-Import Bank of China. The account must reportedly maintain a minimum balance of Sh25 billion before any surplus can be released for loan repayments.
Because that threshold has never been reached, none of the more than Sh100 billion generated by the railway since commercial operations began in 2017 has been used to repay the Chinese loans, despite freight services accounting for more than three-quarters of the revenue.
Instead, the Treasury continues to service the debt directly from taxes while KRC is supposed to reimburse the amount. The reimbursement mechanism has broken down, with arrears owed by the corporation swelling to Sh413.36 billion by the end of June 2025.
“This arrangement has effectively locked out loan repayments, resulting in the steady accumulation of arrears despite continued SGR operations,” the Treasury says in its latest annual debt management report, recommending that the escrow terms be renegotiated to allow debt service alongside operating and maintenance costs.
The report says the SGR arrears account for 80.8 percent of the Sh511.44 billion owed to the Treasury by State corporations through on-lent and direct loans as at June 2025, exposing the government to significant fiscal risk from a single infrastructure project.
The restructuring agreement with China nevertheless marks an important shift in Kenya’s management of its Chinese debt portfolio, offering the Treasury some fiscal relief after years in which Beijing-funded infrastructure loans represented one of the fastest-growing pressures on the national budget.
Kenya’s debt restructuring has emerged as a potential template for other developing economies grappling with costly Chinese loans.
A June report by AidData, a research group at the College of William & Mary in the United States, identified Ethiopia, Mozambique, Zambia, Pakistan and Indonesia among countries that could seek Kenya-style changes to Chinese loan terms.
The relatively favourable terms include longer repayment periods, additional grace periods and conversion of dollar-denominated debt into renminbi as Beijing pushes wider international use of its currency.
