The International Monetary Fund has cautioned Kenya and Ethiopia over the rising financial risks tied to their recent decisions to convert portions of their Chinese loans from US dollars into Chinese yuan, warning that the strategy—while lowering immediate borrowing costs—may expose both economies to new layers of currency volatility.
Kenya completed the shift on October 7, converting its Ksh646.15 billion Standard Gauge Railway loan into yuan. Treasury Cabinet Secretary John Mbadi said the move would save the government about Ksh27.78 billion annually, thanks to lower CNY-denominated interest rates and extended repayment terms.
Ethiopia followed two weeks later, entering talks with Beijing to convert part of its Ksh695.23 billion debt into yuan as it battles a severe foreign-exchange crunch and a protracted restructuring process under the G20 Common Framework.
IMF Cautions on Currency Risk
In a November 11 statement to Bloomberg, an IMF spokesperson said the Fund sees currency swaps as “proactive debt management tools,” but added that their benefits depend heavily on structure and execution.
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