Kenya's external debt rises by KSh344.4 billion ($2.58 billion) as weakened shilling takes Its toll

Kenya's external debt stands at $37.63 billion (KSh4.7 trillion) as of January, with a mean exchange rate of 124.4 to the US dollar.

The weakened shilling has increased the cost of servicing foreign loans, with the cost reaching KSh5.03 trillion at the current exchange rate.

The Kenyan government has been forced to rely on inexpensive loans from organizations like the World Bank and IMF due to the tightening of the global market.

Kenya's startling KSh344.4 billion ($2.58 billion) increase in external debt gives context to the effects of a weakening shilling, whose exchange rate against the dollar has plummeted to a historic low of KSh133.55.

According to figures from the Central Bank of Kenya (CBK), the total amount of external debt as of January was $37.63 billion (KSh4.7 trillion), with a mean exchange rate of 124.4 to the US dollar.

As a result, the cost of servicing some of Kenya's foreign loans when they were due during the review period increased to KSh5.03 trillion at the current exchange rate.

When compared to the same period last year, Kenya's National Treasury paid KSh694 billion ($5.2 billion) for debts by the end of February, an increase of KSh27 billion ($201 million). Part of the rise can be attributed to the weakening of the Shilling, which increased the cost of repaying foreign loans.

A weak shilling has increased the cost of importing important goods from the international market, including fuel, fertilizer, and machinery. This condition has been mirrored in the local economy through an increase in the price of basic commodities.

By February 2022, the exchequer had paid both domestic and foreign creditors KSh667 billion ($4.99 billion), placing additional strain on the nation's dwindling tax receipts. The problem has gotten worse due to the limited liquidity on the domestic and global financial markets, which makes it challenging for the nation to refinance, or borrow money to pay off loans that are about to mature.

Kenya owes multilateral organizations like the World Bank, the International Monetary Fund (IMF), and the African Development Bank (AfDB) the majority of its foreign loans, the majority of which are concessional loans with favored conditions of repayment.

The government has been obliged to rely on inexpensive loans as a result of the tightening of the global market, particularly from the World Bank and IMF.

The World Bank's Development Policy Operations are anticipated to increase funding to the exchequer by giving Kenya an additional KSh132.3 billion ($989 million).

The National Treasury reported that as global supply chain disruptions lessen and inflation drops, the exchange rate and interest rates for the Kenyan shilling are expected to stabilize.