Weakening shilling pushes up Kenya’s debt by $4.1b

Friday August 19 2022

A trader at Muthurwa market in Kenya's capital Nairobi counting money after the day’s sales. The shilling has continued weakening against other major currencies and this has led to higher prices of commodities and increased overall cost of living in the country. PHOTO | FILE | NMG


Kenya’s depreciating currency cost the country nearly half a trillion shillings on the external public debt burden alone, eroding the government’s efforts to pay external lenders.

The shilling, which continues to present a challenge to the economy mainly in servicing of external debts and importation of goods by businesses, devalued by 9.3 per cent from 107.85 units by end of June 2021 to 117.83 by June 30 this year.

A new report by the National Treasury shows that while Kenya’s external debt stock – in dollar terms – reduced by five per cent from $37.1 billion to $35.3 billion in the year to June 2022, in Kenyan shilling terms it increased by Ksh156 billion ($1.3 billion), to Ksh4.16 trillion ($34.7 billion).

“The increase in the public debt is attributed to external loan disbursements, exchange rate fluctuation and the uptake of domestic debt during the period,” Treasury stated in the 2021/22 last quarterly budget and economic review report. The increase in the external debt burden was despite the government’s spending to service loans from other countries, multilateral lenders and foreign commercial banks.

External lenders

Between July 1, 2021, and June 30, 2022, Treasury reported that taxpayers paid a total of Ksh305.3 billion ($25.5 billion) to external lenders. This shows the full impact of the depreciated currency on the external debt burden in the last financial year alone totalled Ksh461 billion ($38.5 billion), or at least 12 per cent of the country’s 2021/22 budget.


“By the end of June 2022, the total cumulative debt service payments to external creditors amounted to Ksh305.3 billion ($25.5 billion). This comprised Ksh184.5 billion ($15.4 billion) (60.4 per cent) principal and Ksh120.8 billion ($10.1 billion) (39.6 per cent) interest,” Treasury stated.

The government spent the highest amount Ksh152 billion ($12.7 billion) on repayments to commercial lenders, bilateral lenders Ksh102 billion ($8.5 billion) and multilateral lenders Ksh51 billion ($ 4.3 billion). Yet the multilateral lenders’ debt stock still rose by Ksh265 billion ($22.1 billion), commercial lender’s debt stock was only reduced by Ksh74 billion ($6.2 billion) and bilateral lenders’ by Ksh30 billion ($2.5 billion).

Had the shilling remained at 107.85 units in the mean exchange rate as was the case by end of June 2021, the external debt stock by end of June 2022 would have been Ksh3.8 trillion ($ 2.5 trillion).

External public debt

“In dollar terms, external public debt stock declined by US$1.8 billion from US$37.08 billion by end of June 2021 to US$35.26 billion by the end of June 2022. This comprised debt owed to multilateral (46.3 per cent), bilateral (26.6 per cent), commercial banks (26.8 per cent), and Suppliers Credit (0.3 per cent),” Treasury stated.

The amount by which the debt reduced is equivalent to Ksh214.6 billion ($17.9 billion), by June 30, 2022 exchange rate terms.

The punishing cost of the depreciating currency, which has remained on an accelerated devaluation trend for months now, is not only being felt by taxpayers while servicing the external debts but also by businesses while importing goods since they have to purchase dollars first.

In recent months, companies have complained of an acute shortage and high cost of dollars in the market, with some being forced to scale down operations.

The ultimate victim is the final consumer, as businesses pass on the cost when setting prices. This has led to higher prices of commodities and increased overall cost of living in the country.