How China ties into the massive drop in Kenya's foreign reserves
Kenya's foreign exchange reserves dropped by $509 million in July 2025 due to increased debt servicing obligations.
The repayment of external debts, particularly $431.9 million to China for the Standard Gauge Railway project, heavily contributed to this decline.
Kenya's total external debt amounts to $5.03 trillion KSh out of an overall governmental debt of KSh 11.51 trillion.
According to data from the Central Bank of Kenya (CBK), reserves declined from a record high of $11.2 billion (KSh 1.45 trillion) on July 10 to $10.69 billion (KSh 1.38 trillion) on July 31.
This significant reduction indicates increased pressure on Kenya's fiscal position, with debt servicing, particularly to foreign creditors, now putting a strain on the country's financial reserves.
How external debt payments are driving the decline
According to the CBK, the key cause for the fall is the repayment of external debts and the delay in getting fresh foreign currency loans.
One of the greatest outflows last month was a $431.9 million (KSh 55.8 billion) return to China, which included both interest ($126.26 million) and principal ($305.64 million) for the Standard Gauge Railway (SGR) project.
This single payment accounted for 81.3% of Kenya's total foreign debt service expenses in July.
Kenya resumed repaying its SGR debts in 2019, following a five-year grace period.
The country's total debt to China from 2000 to 2023 is $9.6 billion, the fourth largest among African nations.
In addition to the SGR repayments, Kenya paid $31.5 million (KSh 4.1 billion) in semi-annual interest on a $1 billion Eurobond issued in mid-2021, as seen on Tuko.
These combined commitments illustrate the rising burden of debt payment on the country's limited foreign exchange reserves.
Kenya's overall governmental debt as of July was KSh 11.51 trillion, with KSh 5.03 trillion payable to external lenders.
Analysts warn that unless fresh sources of foreign currency inflows are secured, Kenya's capacity to defend its currency in the foreign exchange market may deteriorate.
Kenya's crisis is unfolding against the backdrop of broader African foreign exchange challenges.
According to the African Export-Import Bank's June 2025 report, over half of African currencies fell in May 2025, despite continuous economic reforms and strong growth rates.
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