Kenya's China debt drops 19pc as World Bank exposure surges to Sh1.7 trillion

Kenya's outstanding debt to China has fallen 19 per cent from its 2021 peak following a landmark currency conversion agreement. This is even as the World Bank's exposure has surged to nearly triple that amount, underscoring a dramatic reshaping of the country's external creditor profile.

According to the National Treasury's latest Public Debt Bulletin, China's debt stock stood at Sh616.8 billion as of the end of June 2026, down from Sh764.2 billion in 2021. China now accounts for just 10.8 per cent of Kenya's Sh5.685 trillion total external debt.

By contrast, the World Bank's International Development Association (IDA) has emerged as Kenya's dominant external financier, with outstanding debt soaring to Sh1.699 trillion, 29.8 per cent of total external debt and nearly three times China's exposure.

The sharp decline in China exposure follows supplementary agreements signed in July 2025 between the Export-Import Bank of China and Kenya's National Treasury, which converted three dollar-denominated Standard Gauge Railway (SGR) loans into Chinese yuan.

The restructuring extended maturities to 2040 from an initial 2035 maturity and swapped floating dollar-based interest rates for lower yuan-denominated fixed rates. Official estimates place annual debt-service savings at Sh27.8 billion ($215 million).

Data from the Office of the Controller of Budget shows Kenya paid Sh37.5 billion ($290.7 million) to China Eximbank in January 2026, a sharp decline from the Sh59 billion paid during the same period last year.

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

The yuan's share of Kenya's external debt more than doubled to 11.7 per cent following the conversion, while the US dollar's share dropped to 54.8 per cent. The shilling strengthened 1.85 per cent against the yuan to Sh19.06 in June, reflecting reduced pressure on foreign reserves, one of the restructuring's stated objectives.

The deal helped spur Moody's to upgrade Kenya's sovereign credit rating to B3 from Caa1 on January 27, 2026, with a stable outlook. The agency cited improved external sector liquidity, sustained market access, and reduced default risk. Standard & Poor's rates Kenya at B (stable), while Fitch maintains B- (stable).

Multilateral creditors collectively hold Sh3.102 trillion, 54.6 per cent of total external debt. The World Bank's IDA increased its exposure by Sh12.50 billion in June alone, reflecting ongoing disbursements for development programmes. IDA now holds Sh1.699 trillion of Kenya's external debt.

The African Development Bank stands at Sh566.6 billion, the IMF at Sh442.6 billion, and the European Community/EIB at Sh27.5 billion. Monthly movements show the IMF decreased by Sh8.50 billion in June due to repayments, while "Other Multilateral" creditors, including European investment vehicles, jumped by Sh43.19 billion, indicating new programme disbursements.

Bilateral debt stood at Sh973.1 billion (17.1 per cent). Beyond the World Bank and China, other significant bilateral creditors include France (Sh101.0 billion), Japan (Sh77.8 billion), Germany (Sh54.1 billion), Italy (Sh42.3 billion), Spain (Sh15.8 billion), and the United States (Sh8.1 billion).

Commercial debt, including Eurobonds and commercial bank loans, totalled Sh1.539 trillion (27.1 per cent of external debt), with International Sovereign Bonds at Sh1.361 trillion. Kenya priced a $2.25 billion dual-tranche Eurobond in February 2026 through Citibank Europe, financing liability management operations and budget support.

Publicly guaranteed external debt stands at Sh69.85 billion. Japan guarantees Sh60.14 billion (primarily for infrastructure projects), while Kenya Airways commercial debt guarantees stand at Sh9.71 billion. Germany's guarantee dropped to zero in June, fully settled.

Kenya's shift to yuan-denominated loans is part of a broader global trend as emerging nations seek to de-risk from the dollar amid foreign exchange shortages.

Ethiopia's central bank recently confirmed negotiations to convert part of its $5.38 billion Chinese debt into yuan, while Zambia has officially begun accepting the currency for mining taxes and royalties.

Standard Bank, Africa's largest lender by assets, recently became the first on the continent to directly integrate with China's Cross-Border Interbank Payment System (CIPS), allowing near real-time clearing that bypasses slower, more costly dollar-based correspondent banking.

Kenya’s financial transition coincides with major trade liberalisation. Kenya recently confirmed a preliminary agreement granting zero-duty access for 98.2 per cent of its goods to the Chinese market. Trade Cabinet Secretary Lee Kinyanjui described the framework as designed to rebalance a lopsided relationship; in 2023, Kenya imported Sh459 billion from China while exporting only Sh29 billion.

Total public debt stood at Sh13.013 trillion (68.5 per cent of GDP), with domestic debt at Sh7.329 trillion (56.3 per cent), comprising Treasury bonds (Sh6.021 trillion) and bills (Sh1.118 trillion), with a bonds-to-bills ratio of 84:16.

The bulletin reveals commercial banks as the largest domestic debt holders at Sh2.538 trillion (34.6 per cent), followed by other financial corporations at Sh1.130 trillion (15.4 per cent), pension funds at Sh1.028 trillion (14.0 per cent), and insurance companies at Sh1.009 trillion (13.8 per cent).

Households directly hold Sh451.2 billion in Treasury securities, while non-residents hold Sh297.4 billion (4.1 per cent), though they reduced exposure by Sh169.4 million in June, signalling a slight pullback.

The Average Time to Maturity for Treasury bonds stands at eight years, indicating the government is successfully lengthening its domestic debt profile to reduce rollover risk.

Cumulative external debt service reached Sh716.10 billion against a budget of Sh916.53 billion, while domestic interest payments totalled Sh862.65 billion against a Sh883.76 billion budget.