Kenya slashes dollar debt to record low as Chinese yuan gains ground

President William Ruto’s administration has reduced the share of its external debt denominated in US dollars to the lowest level on record, official data shows, as the government accelerates a strategic pivot toward the Chinese yuan to shield itself from exchange rate volatility.

The proportion of dollar-denominated external debt fell to 53.2 per cent in October 2025 from 61.7 per cent a year earlier, according to Treasury bulletins reviewed by The Standard – an 8.5 percentage point drop that underscores the Ruto administration’s most aggressive currency diversification drive yet.

Over the same period, the yuan’s share of Kenya’s external debt more than doubled to 12.1 per cent from 5.3 per cent, making it the third-largest currency in the government’s debt portfolio after the dollar and the euro.

“The government is currently focusing on currency diversification with the aim of mitigating exchange rate risk on external debt,” the National Treasury said in its October 2024 bulletin. By October 2025, that policy had yielded tangible results.

Total public debt rose to Sh12.19 trillion ($94.4 billion) by October 2025, equivalent to 67.9 per cent of GDP, from Sh10.81 trillion a year earlier. But while the nominal debt pile expanded, its currency composition shifted dramatically.

The euro’s share increased to 27.1 per cent from 24.9 per cent, while the Japanese yen and sterling pound accounted for five per cent and 2.5 per cent respectively. The yen’s share edged down slightly from 5.3 per cent a year prior.

President Ruto, a longtime champion of dedollarisation, has consistently argued that Africa must reduce its dependence on the greenback – a policy now reflected in Kenya's record-low dollar debt share.

Treasury mandarins also reckon that for Kenya, the shift to the yuan is yielding lower borrowing costs, reduced currency risk and a hedge against the next dollar shock.

Kenya is not alone. Across Africa, nations burdened by  expensive dollar debt are quietly renegotiating terms with Chinese creditors.

Ethiopia’s central bank recently confirmed talks to convert part of its $5.38 billion (Sh700 billion) debt to Beijing into yuan, while Zambia has begun accepting the currency for mining taxes and royalties – effectively swapping dollar exposure for renminbi stability.

 The moves follow a landmark duty-free trade agreement between Nairobi and Beijing that grants zero-duty access for 98.2 per cent of Kenyan goods to the Chinese market from May this year, further aligning the country’s trade and debt currencies.

 The shift comes as Kenya grapples with the legacy of a punishing dollar rally that hammered the shilling and inflated debt service costs.

In October 2024, the shilling appreciated against the yen, euro, yuan and sterling pound by 7.2 per cent, 2.8 per cent, 1.5 per cent and 3.3 per cent respectively, while holding stable against the greenback.

 By October 2025, the shilling had appreciated further against the yen (3.6 per cent), the euro (1.3 per cent) and sterling (1.9 per cent), while depreciating marginally against the yuan by 0.08 per cent.

 Treasury officials have publicly acknowledged that yuan-denominated loans from Chinese lenders carry interest rates as low as three per cent – significantly undercutting dollar-based financing costs and insulating the budget from Federal Reserve policy swings.

 Kenya’s external debt stock stood at Sh5.46 trillion ($42.2 billion) as of October 2025, up from Sh5.12 trillion a year earlier.

Total external debt service for the first four months of the 2025/26 financial year reached Sh338.67 billion, against a full-year target of Sh716.46 billion.

The composition of Kenya’s external creditors also changed markedly. Multilateral debt fell to Sh3.03 trillion from Sh2.81 trillion, while bilateral debt declined to Sh991.2 billion from Sh1.04 trillion.

 Commercial debt, however, surged to Sh1.36 trillion from Sh1.17 trillion, driven by a $1.5 billion (Sh195 billion) international sovereign bond issued in October 2025, which was accompanied by a partial repayment of the 2028 Eurobond.

That transaction alone added Sh112.6 billion to the commercial debt stock, Treasury data shows. Domestic debt, meanwhile, climbed to Sh6.74 trillion by October 2025 from Sh5.69 trillion a year earlier, with Treasury bonds accounting for 84 per cent of government securities.

 The average time to maturity for Treasury bonds lengthened slightly to 7.62 years from 7.07 years over the period, giving Nairobi more room to manage refinancing risks.

In August 2025, S&P Global upgraded Kenya’s long-term sovereign credit rating to B from B- with a stable outlook, citing strengthened foreign exchange reserves, robust export earnings and consistent diaspora remittances.

“The upgrade was driven by strengthened foreign exchange reserves, ease of access to various sources of external funding, and consistent diaspora remittances,” the Treasury said in its October 2025 bulletin.

“Kenya’s efforts in Eurobond liability management and recent monetary easing have also contributed to smoother debt amortisation.”