Kenya and Indonesia have implemented multifaceted debt management strategies to address external financing challenges and reduce reliance on specific creditors, including diversifying funding sources and focusing on fiscal consolidation and domestic markets. The sustainability of these actions is a subject of ongoing analysis and depends heavily on transparent governance and effective implementation of reforms.
This October, Kenya converted three dollar-denominated loans from China’s Export-Import Bank, tied to its US$5 billion standard-gauge railway, into Chinese yuan. The country’s finance minister said this decision would save about $215 million annually in interest payments. Earlier in January, the Bank Indonesia and the People’s Bank of China renewed their bilateral currency swap arrangement for another five years, allowing exchanges up to 400 billion yuan. Indonesia’s central bank said the arrangement would support bilateral trade settlement in local currencies and contribute to financial stability.
Analysts pointed out that by mid-2025 about 68 percent of Kenya’s external debt was still denominated in US dollars. This meant that the country remained heavily exposed to currency and interest rate volatility even after converting the railway loans. Facing a high risk of debt distress, Kenya has pursued a strategy to manage its debt burden and smooth its maturity profile.
Structural risk
These developments were presented as signs of pragmatic financial management by all stakeholders. Kenya’s government explained that converting the railway loans into yuan would reduce pressure on its fiscal accounts. Indonesia’s central bank said the expanded swap line would deepen monetary cooperation with China and offer additional liquidity tools. At first glance these arguments appeared reasonable, especially for governments seeking quick ways to manage external pressures.
But the logic seems to break down once the structure of national balance sheets is examined. Kenya continues to earn most of its foreign exchange in dollars and shillings, while its reserves hold only a limited amount of liquid yuan assets. In other wirds, the country shifted its repayment currency without shifting the currency of its earnings. Any shock that reduced export revenues or tightened access to yuan liquidity would place the government in a difficult position. It would need to draw down other reserves to service obligations that now sit in a less liquid currency.
Indonesia faced a different set of concerns, but they led to a similar strategic dilemma. The expanded swap line offered the central bank a larger pool of yuan liquidity, yet it also deepened the country’s operational reliance on a currency that is not fully convertible and remains tied to China’s policy decisions. A swap line of this size could help Indonesia manage temporary volatility; it could not replace the stability that came from diversified reserves and broad creditor engagement. The tool therefore provided short-term relief while introducing long-term dependence.
A more serious issue sits beneath these practical concerns. Both countries moved closer to a position where a single major creditor would hold increasing influence over their financing environment. China already occupied a dominant role as a lender in several parts of the developing world. Once debts are linked to the yuan and supported by Chinese swap lines, the borrower’s freedom to negotiate on purely economic terms become narrower. Restructuring talks, project renegotiations, and even procurement decisions could easily become entangled with larger political questions.
This concentration of exposure is often underestimated. It is easy to focus on the immediate savings and ignore the cumulative strategic weight of these arrangements. Yet over time, the dependence is no longer simply about the size of the debt but about the currency in which it is held, the channels through which liquidity can be accessed, and the political conditions that shape these channels.
These currency conversions and swap agreements, then, may in the short term appear to offer quick solutions for governments facing fiscal stress. They lower interest payments and create the impression of greater flexibility in external financing. But the bigger picture is less reassuring: these decisions have now created new currency mismatches and increased creditor concentration, and have tied national balance sheets to a financial system that lacks transparency and full convertibility.
If policymakers wish to use yuan tools responsibly, they need to build larger yuan reserves, maintain clarity in the terms of their swap agreements, and avoid allowing China to become the sole anchor of their external financing. Without these safeguards the recent actions taken by Kenya and Indonesia appear frankly reckless.
Rishan Sen is a researcher focused on Chinese foreign policy and its strategic footprint across Asia.
