Kenya’s external debt increases by KSh344bn to about KSh5.03 trillion
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Kenya's external debt increases by KSh344bn to about KSh5.03 trillion as a result of the weakening local currency
Kenya’s external debt increases by KSh344bn to about KSh5.03 trillion as a result of the weakening local currency.
The astonishing increase in Kenya’s external debt of Sh344.4 billion gives context to the effects of the shilling’s decline, whose value versus the US dollar has plummeted to a record low of Sh133.55.
According to figures from the Central Bank of Kenya (CBK), the overall external debt as of January was $37.63 billion (Sh4.7 trillion), with a mean exchange rate of 124.4 to the dollar.
This means that at the current exchange rate, the stock of debt has been inflated to Sh5.03 trillion, pushing up the cost of servicing some of Kenya’s foreign loans as they fell due during the review period.
An increase of Sh27 billion from the same time last year, the National Treasury paid out Sh694 billion in debt in February.
Part of the rise can be ascribed to the weakening of the Shilling, which increased the cost of repaying foreign loans.
A weak shilling has made it more expensive to import essential supplies from abroad, including fuel, fertilizer, and machinery. This has led to an increase in the cost of basic goods in the local economy.
In February 2022, both local and foreign creditors were paid Sh667 billion from the exchequer, piling pressure on the country’s flagging tax revenues.
The situation has been aggravated by the tightening of liquidity in the local and international financial markets, which makes it difficult for the country to borrow and repay some maturing loans, technically known as refinancing.
Kenya’s latest stock of external debt might have reduced on new loans being contracted or repaid.
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The debt repayments have contributed to a record drop in the country’s foreign exchange reserves (Forex) to Sh860.6 billion ($ 6.446 billion) by the close of business on Thursday last week.
Almost half of the total public debt is in foreign currencies thus exposing the country to forex volatility.
Most of Kenya’s foreign loans are owed to multilateral institutions such as the World Bank, the International Monetary Fund (IMF), and African Development Bank, with a big chunk of the loans being concessional loans with preferential repayment terms.
With the tightening of the global market, the country has been forced to rely on cheap loans, especially from the World Bank and IMF.
The World Bank is expected to provide a further Sh132.3 billion ($1 billion) to Kenya through its Development Policy Operations, boosting funding to the exchequer.
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