Falling forex putting East Africa economies at risk of default

Saturday July 08 2023
Kenya shilling and dollar

US dollars and Kenya shilling at a forex bureau in Nairobi. PHOTO | NMG


East African economies are facing the risk of default on their foreign loan obligations over rising debt repayment spending, falling forex exchange reserves and weakening currencies.

World Bank’s International Debt data reveals that EA countries are struggling to accumulate sufficient forex reserves to meet their loan obligations, a situation compounded by flagging export receipts and depreciating local currencies, which has made the cost of dollar-denominated loans shoot through the roof.

Read: Africa economies struggle with funding constraints

Deteriorating forex reserves are largely as a result of the countries’ share of debt service-to-total government spending accelerating faster than the amount of foreign currencies regional central banks can stockpile through export receipts and diaspora remittances.

The WB said that in the past 10 years (2011-2021) EA economies experienced massive erosion of forex reserves, coupled with deterioration of other key debt indicators — debt service to exports ratio and external debt to exports ratio — which marked significant increases over the period, putting EA economies debt repayment positions under a threat.

For example, Kenya’s forex reserves to external debt stock ratio declined to 23 percent in 2021 from 42.5 percent in 2011 while debt service as a proportion of government expenditure has risen to 12.3 percent in 2023 from 4.1 percent in 2011.


Kenya’s debt-to-GDP ratio now stands at about 70.8 percent going by the current total debt of Ksh9.63 trillion ($68.78 billion) and a GDP of Ksh13.6 trillion ($97.14 billion) for 2022. The proportion of external debt stock to exports rose to 346.6 percent in 2021 from 98.1 percent in 2011 while debt service toexports ratio rose to 20.6 percent from 4.3 percent in the same period.

Read: Kenya trims 2023 economy growth to 5.8pc

In Rwanda, forex reserves to external debt fell to 21.1 percent in 2021 from 49.1 percent in 2011 while debt service to exports ratio increased to 37.9 percent from 4.8 percent.

In Tanzania, reserves as a proportion of external debt declined to 22.6 percent in 2018 from 36.6 percent in 2011 with no data available for 2019-2021.