A new policy brief from the AidData research center at William & Mary suggests that Ethiopia could secure significant fiscal relief by following the debt restructuring model recently adopted by Kenya, which involved shifting debt from U.S. Dollars (USD) to the Chinese Yuan (RMB). While reports often focus on the benefits of switching currencies, the policy analysis reveals that for borrowers, the bulk of debt relief stems not from the currency swap itself, but from traditional debt restructuring tools.
In October 2025, Kenya made international headlines by converting its railway construction debt owed to the Export-Import Bank of China from U.S. Dollars to the Chinese Yuan. This move was viewed as a strategic step to promote the acceptance of the Yuan and lower borrowing costs, with initial reports suggesting savings of up to $215 million annually.
However, AidData researchers Ocean Pandey and Sailor Maya argue that this perspective ignores the true nature of the agreement. Their analysis indicates that the highly publicized currency benchmark shift—moving from the U.S. Dollar-linked SOFR to the Chinese Loan Prime Rate (LPR)—contributed only a small fraction to the total relief.
According to the study, titled *”Kenya’s Dollar-to-Yuan Debt Swap Was Indeed a Debt Restructuring,”* nearly 93.8 percent of the debt relief came from conventional debt restructuring methods. These include lowering interest rates, adding new grace periods, and extending loan repayment timelines. In Kenya’s case, changing the benchmark alone saved only $23.6 million, whereas the full debt restructuring package increased those savings to $385.8 million.
This finding provides crucial guidance for Ethiopia, which is currently undergoing its own external debt restructuring process. Like Kenya, Ethiopia has relied on loans for large infrastructure projects, particularly the Addis Ababa–Djibouti railway.
The $2.49 billion Addis Ababa–Djibouti railway project has long been a focal point for debt sustainability discussions. Faced with the challenge of servicing dollar-denominated debt with revenue earned in Ethiopian Birr, the government has been seeking ways to ease the repayment burden.
AidData’s scenario analysis shows what could happen if a “Kenya-style” debt restructuring were applied to this railway loan. The result is striking: simply converting the loan from the dollar-linked SOFR to the Chinese LPR could benefit Ethiopia by approximately $169.1 million. However, implementing a full package that includes associated interest rate reductions, a four-year grace period, and a six-year extension of the repayment term could boost total savings to $780 million. In this comprehensive scenario, about 78.2 percent of the relief would stem from the restructuring terms rather than the currency switch itself.
This report serves as a timely reminder for officials in Addis Ababa and other capitals currently negotiating with Chinese lenders. In their efforts to increase the global acceptance of the Yuan, China is encouraging borrowers to shift toward Yuan-denominated debt. However, AidData warns that such changes should not be viewed in isolation.
As the authors state, “The lesson for borrowers is clear: the Yuan swap should not be viewed in isolation. Without interest rate reductions, grace periods, or loan term extensions, the financial relief obtained may be far less than claimed.”
Although there is an opportunity to secure $780 million in relief, this depends entirely on the willingness of Chinese lenders to grant Ethiopia the same type of restructuring offered to Kenya. It is worth noting that Ethiopia’s railway loans were previously restructured in 2018, with repayment periods extended from 15 to 30 years; consequently, the possibility of securing further concessions from the Export-Import Bank of China remains uncertain.
