Kenya’s national debt has increased by KSh 382.6 billion over the past one year because of the rapidly weakening shilling which has depreciated by 23% against the dollar in that time frame.
- •According to notes from Treasury, the country’s external debt service has increased by KSh 6.9 billion over the past four months on account of the exchange losses.
- •External debt service has increased from KSh 95,978,114.06 million in June 2023 to KSh 102,832,258.75 in October 2023.
- •The Kenya Shilling depreciated against the US dollar to trade at KSh 151.94 this Wednesday from KSh 151.84 in the previous session. On a year-to-date basis, the Kenya Shilling has depreciated by 23.15% to the US$, compared to 9.04% depreciation for the year ended December 2022.
How Kenya got into the debt hole
According to a debt distress report by Faida Investment Bank, Kenya’s debt load jumped from US$ 10.2 billion in 2013 to US$ 34.8 billion in 2020, including a tenfold jump in commercial borrowing to US$ 10.4 billion and a nearly fourfold rise in bilateral loans to US$ 10.6 billion, led by China. This sharp rise in external debt, especially from non-concessional sources, has been accompanied by a steep increase in debt servicing outlays.
From 2020 to 2022, borrowing dynamics changed as Kenya turned to concessional multilateral borrowing from the IMF, the World Bank, and the African Development Bank (AfDB), to help deal with the impact of the Covid‑19 pandemic. Kenya also embarked on a 38‑month IMF program in April 2021, running to mid-2024, supported by a USD 2.34 billion funding envelope geared towards strengthening fiscal and debt management.
As the overall debt stock went up, Kenya planned a sale of US$ 982 million Eurobond in January 2022 for the 2021/2022 financial year to partly plug a 7.5 percent budget deficit. This plan was scrapped in June 2022 due to rising yields on existing Eurobonds and this made the new issue financially unviable.
Eurobond issue cancellation
The resultant effect of the canceled Eurobond was the steady erosion of Kenya’s foreign exchange reserves, from US$ 8.3 billion in January 2022 (5.1 months of import cover) to US$ 7.0 billion in November (4.0 months of import cover), before a temporary uptick in December to US$ 7.4 billion (4.2 months of import cover).
The improvement in December is from the disbursement of a fifth IMF program tranche of about USD 447 million, including a supplementary amount of US$ 216 million to help relieve current financing constraints.
This rise was only temporary as foreign exchange reserves resumed their retreat in 2023, partly because of a US$ 400 million SGR loan repayment to China in January, to reach about US$ 6.4 billion at the end of February, cutting import cover to 3.9 months, a multi-year low.
As of 22 September 2023, the foreign exchange reserves are at US$ 7.0 billion which represents 3.8 months of import cover.
Kenya’s national debt is forecast to continuously increase between 2023 and 2028 by 36.7 billion U.S. dollars (51.34%). After the tenth consecutive increasing year, it is estimated to reach at least US$ 108.13 billion by 2028.
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