China signals breakthrough in new financial talks with Kenya

President William Ruto with Prime Minister Li Qiang, after a meeting at the Great Hall of the People in Beijing, China. April 23, 2025. [Courtesy, PCS]

China on Wednesday hinted that Kenya’s urgent request for a key financial cooperation pact is likely to succeed, a development that would bring relief to President William Ruto’s cash-strapped government, with the fiscal year ending in ten days. 

Director-General of the Foreign Ministry’s African Affairs Department Du Xiaohui told The Standard during a press conference with reporters in Beijing that he saw “positive outcomes” from discussions with Kenya. 

President Ruto’s administration is pushing to seal the financial deal by June 30, this year, a narrowing window of under 10 days, underscoring its critical importance for the upcoming fiscal year.   While declining to detail sensitive negotiation specifics, Du emphasised China’s commitment to working with all African nations to resolve debt crises by fostering “self-generated development capacity.”

Analysts see the potential financial pact directly impacting Kenya’s immediate fiscal health, debt management, and ability to fund the national budget, which is a pressing concern for the Ruto government.

Du underscored that China’s strategy for tackling African debt stresses centres on empowering nations to build their economic capacity, rather than just offering relief. 

Du also added that China has “withstood great pressure” to find solutions, subtly criticising “certain actions” from nations that “unilaterally increase interest rates” and exacerbate debt difficulties.

The high stakes of the agreement are amplified by China holding over 60 per cent of Kenya’s bilateral debt, stemming from approximately 12 major infrastructure projects.

Prime Cabinet Secretary and Cabinet Secretary for Foreign and Diaspora Affairs, Musalia Mudavadi recently led high-level bilateral talks in the southern Chinese city of Changsha with Chinese Foreign Affairs Minister Wang Yi, emphasizing the urgency of concluding the financial cooperation agreement. 

Mudavadi’s visit followed President William Ruto’s state visit to Beijing in April, where he and Chinese President Xi Jinping outlined broad areas of cooperation, including trade and investment. Mudavadi had stressed the importance of swift implementation, stating: “The support of the government of China towards the conclusion of the discussions on financial cooperation at the earliest, before the end of June 2025, is fundamentally important.”

Specific financial terms of the latest cooperation deal with China were not disclosed, but such agreements typically involve concessional loans, infrastructure financing, and trade facilitation. This latest move by Kenya highlights Nairobi’s growing dependence on Beijing, particularly as Kenya navigates a challenging economic landscape. 

The National Treasury last week unveiled a new budget for the year starting July 1, amid pressure to explore alternatives for economic support amid strained tax collections, looming debt repayments, and economic headwinds.

Kenya’s total expenditure in the financial year 2025/26 budget is projected at Sh4.291.9 trillion, equivalent to 22.3 per cent of GDP. 

The resultant fiscal deficit, including grants, is projected at Sh923.2 billion (4.8 per cent of GDP), to be financed by a mix of external and domestic borrowing.

Du Xiaohui, Director-General of the Chinese Foreign Ministry's African Affairs Department During the Press Conference in Beijing. [Brian Ngugi, Standard]

National Treasury Cabinet Secretary John Mbadi, while making his budget speech, highlighted fiscal constraints including rising demands for public spending, public debt accumulation, and the challenge of mobilising higher tax revenues while maintaining a low cost of doing business. “These constraints are interlinked, and addressing them effectively requires strategic planning, fiscal discipline, and a commitment to long-term sustainability,” Mbadi stated in his budget address, emphasising a fiscal consolidation plan to slow debt growth while protecting service delivery.

Treasury plans liability management operations and a continued pursuit of concessional loans, while exploring new funding instruments such as debt swaps and diaspora bonds.

Key agreements from Ruto’s April trip included plans to extend the China-funded Nairobi-Naivasha Standard Gauge Railway to Kisumu and eventually Malaba, and the dualing of the Nairobi-Mau Summit Road. 

Mudavadi had noted that Kenya is consulting internally on the Economic Partnership Cooperation Framework earlier agreed on, aiming to be ready before the end of June. This could lead to greater access for Kenyan goods and services in the Chinese market.

Despite these challenges, Kenya’s public debt is projected to remain within sustainable levels over the medium term, progressively declining from 63 per cent of GDP in 2024 towards a debt anchor of 55 plus or minus five per cent by 2028, said Mbadi.