Since the start of the year, Kenya’s foreign currency obligations have increased by at least Sh350.6 billion due to the shilling’s depreciation, with the local currency yesterday remaining at an all-time low of Sh132.52 versus the US dollar.
Kenya’s state debt reached Sh9.17 trillion by the end of December 2022, with Sh4.7 trillion (51.2%) of that amount being external public debt.
Dollar-denominated loans made up Sh3.19 trillion, or 68.06 percent, of the Sh4.7 trillion in external obligations as of the beginning of January, followed by Sh928.9 billion in Euros (19.79%), Sh252.9 billion in Chinese yuan (5.38%), and Sh198.38 billion in Japanese yen (4.22 per cent). The country would have to spend more to service the loans when the government buys the relevant currencies to repay its creditors after three straight months of the Kenyan shilling depreciating sharply.
Kenya needs more shillings to repay the same amount of debt due to a weak local currency, which increases the cost of repaying foreign loans. According to a Nation analysis, the shilling has lost value against the dollar, the euro, the yuan, and the yen by a combined 7.37 percent, 9.6 percent, 7.2 percent, and 4.20 percent.
The research demonstrates that the shilling’s 7.37 percent depreciation added at least Sh235.8 billion to the dollar-denominated debt stock by April 3, 2023, when the shilling traded at 132.52 units versus the dollar, using the December foreign debt as a baseline. Without taking into account additional borrowing, this would bring the total amount of debt in US dollars to Sh3.4 trillion. According to the analysis, the Euro-denominated debt, which made up Sh928.9 billion (19.76% of the total external debt as of the end of December 2022) has grown to surpass Sh1 trillion.
The Euro-denominated debt stood at Sh1.018 trillion on April 3, 2023, at an exchange rate of 144.29 units, up from 131.65 units on January 3. Other currencies, which account for more than 97% of Kenya’s external governmental loans, have followed this trend.
For instance, the yuan-denominated debt at the end of December was Sh252.9 billion (5.38 percent of the total external debt at the time), and after the shilling’s depreciation of 7.2% from 17.93 units at the beginning of January to 19.23 units on April 3, the debt has increased to Sh271 billion.
The yen-denominated debt, which was at Sh198 billion by the end of December, is the same (4.22 per cent of total external debt then). The external state debt now totals Sh351.59 billion after the yen-denominated debt passed the Sh206 billion threshold.
This indicates that by April 3, the external loans in the four major currencies had increased from Sh4.58 trillion at the beginning of the year to Sh4.93 trillion. In the same period, Controller of Budget Margaret Nyakang’o claimed that she had authorized more than Sh3 billion to top up debt payments, which were solely brought on by the depreciating shilling, throughout the six months leading up to December 2022.
A check at all the main foreign currencies reveals that the debt is expanding quickly and broadly and might generate Sh1 trillion annually if the shilling does not hold stably, despite the COB report’s exclusive focus on the dollar-denominated debt.
The burden will increase beyond the amounts addressed by this research due to the continuous depreciation of the shilling.