Kenya’s dollar denominated loans have soared by 17.6 per cent since 2013 from local currency weakness according to an analysis by the Controller of Budget (CoB).
The analysis reveals the effect the depreciation of the Kenya shilling against the major world currencies has had in increasing the public external debt stock.
“The depreciation of the Kenya shilling against the major world currencies has increased the public external debt stock. For instance, dollar-denominated debt has grown by 17.6 per cent due to currency depreciation over the last 10 years,” the CoB stated.
“The exchange rate was Sh86.31 against the US dollar in December 2013 and Sh148.10 against the US dollar in September 2023. Data from the National Treasury shows that over 60 per cent of external debt is denominated in US dollars, indicating the high level of exposure of total debt to foreign currency fluctuations,” the CoB added.
The Kenya shilling has shed in excess of 20 per cent of its value against the US dollar since the turn of the year, with the weakness attributed to the correction of the unit’s previous overvaluation according to Treasury and the Central Bank of Kenya (CBK).
The depreciation of the shilling has resulted in a bloated stock of dollar-denominated debt while increasing periodic interest payments on the arrears.
Kenya’s external debt is widely contracted in dollars, with the stock of debt in other currencies standing at 21.3 per cent in euros, 3.9 per cent in yen, 5.1 per cent in yuan and 2.3 per cent in sterling pound. Treasury notes that the government is actively planning on contracting external debt in numerous currencies to manage forex volatility.
“The government is currently exercising currency diversification with an aim of mitigating the exchange rate risks on external debt,” the exchequer stated in a June statistical bulletin.
As at December last year, 49 per cent of total public debt was in foreign currencies and hence exposed to foreign exchange rate volatility risk. Interest payments on loans in the current fiscal year to the end of June 2024 are expected to rise by a record Sh231.6 billion to Sh918.9 billion from the weaker shilling.
Last month, Treasury Cabinet Secretary Njuguna Ndung’u noted the repayments of debt were bleeding the country dry, resulting in short-term liquidity constraints.
“We have been pushed to a difficult financial position by short-term debt repayment, high interest rates and the depreciating shilling. However, we are not facing an insolvency crisis,” he told the National Assembly Finance and National Planning committee.
