Kenya's decision to convert three Chinese railway loans from US dollars into Chinese yuan, reducing its debt-service costs by approximately $215 million per year, has attracted attention from at least five other countries, according to a new study by AidData, a US-based research group at the College of William & Mary.
Interest from Debt-Laden Borrowers
The report identifies Pakistan, Ethiopia, Mozambique, Zambia, and Indonesia as nations that could seek similar changes to the terms of Chinese loans. These countries are exploring alternatives to expensive dollar-linked financing as Beijing pushes broader use of the renminbi in cross-border lending.
Kenya's widely publicized payment relief from China Eximbank has sparked interest among other countries in converting their existing debts from USD to RMB, said AidData, which analyzed media reports for its study.
Strategic Shift in Chinese Lending
The US dollar remains the dominant currency for bilateral lending to developing economies. However, Kenya's move is also being seen as part of a strategic shift in China Eximbank's broader portfolio of cross-border loans as it works to accelerate the internationalization of the renminbi.
China Eximbank is now encouraging, and in some cases requiring, sovereigns to borrow in yuan rather than dollars, the report said, citing recent examples from Sri Lanka and Bangladesh. China Eximbank and finance ministry officials did not immediately respond to requests for comment.
Ethiopia as a Top Candidate
Ethiopia, which also borrowed money from Beijing to build a railway and is at the tail end of restructuring its external debt, was a top candidate for benefiting from a similar move, the report found. Ethiopia's interest in RMB debt conversion is best understood as part of a broader debt distress episode, the report's authors said.
Potential Cost Savings
Converting US dollar debt to renminbi tied to China's Loan Prime Rate could reduce borrowing costs if the new benchmark is meaningfully lower than the existing arrangement linked to the US dollar short-term funding rate SOFR, the report said.
