Kenya’s dollar-denominated debt hit 69.3 percent of the country’s external debt in October, exposing the taxpayers to higher financing costs due to the sharp depreciation of the shilling against the US currency.
This translates to Ksh3.02 trillion ($24.4 billion) of Kenya’s growing external debt that rose to Ksh4.35 trillion ($35.3 billion) in October, with that proportion growing by 2.3 percentage points from 2021 and an increase of 3.4 percentage points compared to 2020.
Kenya’s National Treasury data shows the proportion of external debt denominated in the euro stood at 18.8 percent in the same month, 4.1 percent in yen, 5.3 percent in yuan, and 2.3 percent in pounds sterling while currencies accounted for 0.2 per cent of the total external debt.
This comes at a time the Kenyan shilling has continued to weaken against the greenback due to the raises of lending rates by the US Federal Reserve causing an outflow of dollars from the global market into the US which heavily affected developing countries.
External debt load
The dollar was trading at a mean of Ksh122.94 Thursday compared to a mean of Ksh113.17 at the start of the year, a rise of 8.6 percent, increasing Kenya’s external debt load.
“Overall, the national government’s external debt stock increased by Ksh24.78 billion ($201.4 million) from Ksh4,334.79 billion ($35.2 million) in September 2022 to Ksh4,359.57 billion ($35.4 million) in October 2022. This was attributed to disbursements made during the month and the exchange rate depreciation,” said the Treasury.
This comes at a time the Parliamentary Budget Office (PBO), a key office that guides Kenyan lawmakers on monetary policy, has called for the issuance of a portion of external debt in local currency to reduce the impact of exchange rate risk and change the currency composition of Kenya’s debt portfolio.
Biggest risk
This even as the office flagged the dollar, euro and Japanese yen as posing the biggest risk to the debt burden as they make the largest composition of the country’s foreign debt portfolio.
“It is the movements of the exchange rates related to these three currencies that have the highest impact on the composition of the external debt stock and also the in-year external debt servicing,” said PBO.
Kenya’s public debt stock hit Ksh8.74 trillion ($71.03 billion) in October which is 62.3 percent of the country’s gross domestic product (GDP).
The domestic debt stock stood at Ksh4.38 trillion ($35.6 billion) (31.2 percent of GDP), while the external debt stock was Ksh4.35 trillion ($35.4 billion) (31.1 percent of GDP).
“The government is currently exercising currency diversification with an aim of mitigating the exchange rate risk on external debt,” said the Kenyan Treasury.