November 07, 2025
Introduction
Confronted with mounting debt obligations and constrained fiscal space, Kenya is recalibrating its borrowing strategy in rather interesting ways. At the heart of this shift is a growing embrace of yuan-denominated financing, a move that not only signals a pivot toward China and other Asian lenders but also reflects a broader trend among developing economies seeking alternatives to Western capital markets. The most recent efforts are a currency redenomination of its three dollar-denominated standard gauge railway loans (a sum total of USD$3.5 billion) obtained from China Exim Bank to yuan. It is expected that Kenya will save KSh 27.79 billion (USD $215 million) annually, with repayment set to begin on these terms in January 2026.
This comes amid a broader effort to restructure Kenya’s debt portfolio, manage looming repayment pressures, and restore macroeconomic stability. From refinancing Eurobonds at higher costs to negotiating a debt-for-food swap backed by the World Food Programme, the Ruto administration is deploying a mix of tools to navigate a complex and increasingly precarious debt landscape. With over half of its tax revenue now consumed by debt servicing and USD$26 billion in external redemptions looming over the next decade, Kenya’s fiscal path appears to be precarious. Protracted engagements with the International Monetary Fund (IMF) and a recent settlement of a $1 billion Eurobond underscore the urgency of the moment and the government’s determination to regain control of its financial future. This Update explores the contours of Kenya’s evolving debt strategy, the geopolitical implications of its currency shift under the SGR facility, and the broader lessons for African economies grappling with similar challenges.
Background: The True Cost of the Railway
The Standard Gauge Railway (SGR) in Kenya, once touted as the central pillar of East Africa's economic future and a flagship project of China's Belt and Road Initiative (BRI), has become a monument to a crippling national debt crisis. The line, which abruptly terminates in an unused cornfield, falls short of its intended destination at the Ugandan border, a failure Kenyans had pessimistically labeled the “railway to nowhere” years ago. Far from symbolizing Kenya's emergence as a regional powerhouse, the SGR now represents a case study in unsustainable sovereign borrowing. The core issue is that this single infrastructure project has exposed Kenya to an unprecedented mountain of external debt, pushing the country toward a financial breaking point and raising serious questions about the long-term viability of BRI financing across the continent.
Launched with grand ambition, Kenya’s Standard Gauge Railway (SGR) project quickly became emblematic of the high financial and geopolitical stakes tied to large-scale infrastructure financed by China. While the railway was envisioned as a transformative corridor from Mombasa to Naivasha and beyond, it has instead become a cautionary tale of debt dependency and fiscal strain.
To fund the initial phases of the SGR, Kenya borrowed approximately USD $5 billion from Chinese banks in 2014 and 2015. The financial burden of this burden is stark: In terms of operational costs: Kenya spends nearly USD$8 million per month just to keep the SGR running, excluding debt repayments. Additionally, annual payments to China for the SGR exceed USD$1 billion. According to Auditor-General Nancy Gathungu, Kenya owes US$41 million in penalties to China Exim Bank for the 2025–2026 fiscal year alone. She criticized this as inappropriate use of public funds.
Analysis: Kenya as a Bellwether for BRI Debt
The stalled extension of the SGR and its financial fallout have positioned Kenya as a critical case study in the global Belt and Road Initiative (BRI) narrative. The SGR’s financial collapse underscores how mega-projects, while visually impressive, can mask deeper vulnerabilities. Critics like businessman Jimi Wanjigi have labelled the project a “debt heist”, warning that its true cost to Kenyan taxpayers could more than double the original estimates. Without significant fiscal reform and external support, Kenya’s debt path is widely viewed as unsustainable.
The crisis also sheds light on China’s evolving lending strategy. Analysts argue that Beijing increasingly opts to extend loan maturities and delay defaults, effectively masking deeper solvency issues as short-term liquidity problems. While this approach avoids immediate default headlines, it risks entrenching long-term financial instability and deferring inevitable restructurings. Additionally, David Omojomolo, an Africa expert at Capital Economics, noted that nations with significant financial ties to China, like Angola, are closely monitoring Kenya’s situation. ‘Kenya’s debt path is unsustainable without backing from the IMF and substantial fiscal reforms’, he told The South China Morning Post. ‘While the country might manage to scrape by in the near term, its capacity to meet debt obligations will stay under pressure, keeping the risk of a sovereign default high’.
Conclusion
The Kenyan SGR crisis is more than a failure of one railway project; it is a geopolitical inflection point that challenges the long-term feasibility of Kenya’s financing model. The debacle serves as a stark warning about the consequences of high-interest sovereign borrowing for non-productive infrastructure. The ultimate cost is not just measured in the penalties owed to China Exim Bank, but in the fiscal paralysis that prevents investment in essential public services and stalls economic recovery. While Kenya may manage to "muddle through" the short term, the elevated sovereign default risk will persist until it achieves meaningful debt reduction.
Ultimately, the SGR stands as a monument to the debt crisis, forcing a necessary re-evaluation of how large-scale infrastructure ambitions should be financed across Africa. The long-term resolution of Kenya's debt will inevitably influence how other nations approach BRI financing and, crucially, how African governments and international bodies collaborate to ensure that development financing is both transformative and fiscally sound.