Kenya’s external debt balloons by $2.58b on weak shilling

Tuesday April 11 2023
Central Bank of Kenya

A Nairobi resident passes near Central Bank of Kenya. The bank has released data showing that Kenya's total external debt as of January 2023 stood at $37.63 billion. PHOTO | FILE | NMG


Kenya’s external debt has ballooned by a staggering KSh344.4 billion ($2.58 billion), giving dimension to the impact of a weakening shilling whose exchange rate against the greenback has tanked to a historic low of KSh133.55.

The Central Bank of Kenya (CBK) data shows that total external debt as of January stood at $37.63 billion (KSh4.7 trillion), where the mean exchange rate was 124.4 against the dollar.

This means that at the current exchange rate, the stock of debt has been inflated to KSh5.03 trillion, pushing up the cost of servicing some of Kenya’s foreign loans as they fell due during the review period.

By February, Kenya’s National Treasury paid KSh694 billion ($5.2 billion) for debts, an increase of KSh27 billion ($201 million) in the same period last year, with part of the increase being attributed to the weakening of the Shilling which pushed the cost of servicing foreign loans.

Read: Kenya's Eurobond repayment plan

A weak shilling has also pushed up the cost of importing key materials such as fuel, fertiliser and machinery from the global market, a situation that has been reflected in the local economy through a spike in prices of basic commodities.


By February 2022, both local and foreign creditors were paid KSh667 billion ($4.99 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.

The World Bank in a new report has cast doubt on the ability of the country and other sub-Saharan nations to refinance their multi-billion Eurobonds in the coming months following difficulties facing the global debt markets that have triggered a new wave of expensive loans.

Kenya is preparing to retire the KSh264 billion ($1.98 billion) debut Eurobond whose maturity comes up in June next year.

The country’s stock of foreign loans must have changed in the intervening period with the nation retiring some debt even as it contracted new ones.

The Kenyan government for example in March paid a total of KSh33 billion ($247 million) for the construction of the standard gauge railway (SGR), according to figures provided to The Business Daily by the country’s Controller of Budget, Dr Margaret Nyakang’o.

These debt repayments have contributed to a record drop in the country’s foreign exchange reserves to KSh860.6 billion ($6.436 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.

ksh dollar

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

Reliance on cheap loans

Most of the Kenya’s foreign loans are owed to multilateral institutions such as the World Bank, the International Monetary Fund (IMF) and African Development Bank (AfDB), with a big chunk of the loans being concessional loans with preferential repayment terms.

Read: IMF supports Ruto revenue plan

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 KSh132.3 billion ($989 million) to Kenya through its Development Policy Operations, boosting funding to the exchequer.

The National Treasury said the Kenya shilling exchange rate and interest rates are projected to stabilise as inflation declines with the easing of global supply chain disruptions.

“Exchange rate stability will be supported by the recovery in remittances inflow, and tourism as well as the reduced import of capital goods,” Kenya’s National Treasury said in its 2023 Medium-Term Debt Strategy, which was published on February.