Kenya has completed converting a $5 billion railway loan from China from dollars into yuan currency in order to save on interest payments, its Finance Minister John Mbadi announced on Tuesday.

The conversion, which allows the higher dollar-based interest rates on the two tranche of the loan to drop into their lower yuan-based counterpart, will save the country about $215 million a year, Mbadi told reporters.

“It kicks off immediately and it is a saving in our fiscal space,” Mbadi said.

Apart from the financial relief, officials attribute the move to switch the currency of the loan to the fact that the East African nation’s debt is concentrated in dollars, exposing the government to higher currency and interest rate risks.

Kenya kicked off talks with China on August 1, this year to ease the cost of servicing its loans by converting part of its dollar-denominated debt into yuan.

The plan is now expected to slash interest costs by nearly half, also seeks to restructure repayment terms and ease pressure on public finances. China is Kenya’s largest bilateral lender, with repayments amounting to about $1 billion annually.

“The moment we move from US dollar to renminbi (the official currency of China that symbolises the country’s monetary authority} automatically, the interest rate reduces by almost half,” Mbadi said.

“To us, that is a big saving.” He noted that the talks were advancing but gave no timeline for conclusion.

The term renminbi means “people’s currency” in Mandarin, reflecting the government’s socialist principles when the currency was established.

The discussions are centred on loans from the Export-Import Bank of China that funded the $5 billion standard-gauge railway, Kenya’s biggest infrastructure scheme since independence.

The line connects the port of Mombasa to Nairobi and extends to Naivasha. Servicing these loans is expected to account for roughly a quarter of Kenya’s external debt obligations in the year to June 2025.

Treasury data show Kenya’s external debt stock at roughly $92 billion in June, including $14.4 billion owed to the World Bank, $7.52 billion to Eurobond holders and $5.04 billion to China.

While Beijing has not confirmed the talks, its Foreign Ministry said it would continue to “promote practical cooperation with Kenya and other African countries,” according to Bloomberg.

• A Tell Media / Reuters report