Kenya’s January payments towards the standard gauge railway (SGR) loans from China have appreciated by Sh14 billion on account of a weaker shilling that has inflated external debt and its service costs.
World Bank data on Kenya’s external debt payments shows that the country will spend $536.9 million (Sh84.8 billion) to service the loans, which are paid on semi-annual basis in January and July. The payments comprise a principal amount of $289.95 million and interest of $246.96 million.
Restated data from the World Bank shows that the payments in January 2023 stood at $564.53 million, which at the prevailing exchange rate was the equivalent of Sh70.2 billion. Previously, the institution had estimated the cost at $409.86 million.
The growth in the shilling equivalent of the loan payments, even as the dollar amount declines shows, the inflationary effect of the weakening of the shilling by 21.5 percent to the dollar in 2023 on external debt costs.
Kenya borrowed a total of $5.08 billion (Sh802 billion at today’s rate) in 2014 and 2015 from China to fund the Mombasa-Naivasha SGR line, with the loan repayments kicking in from January 2020 after a five-year grace period.
The loans were on a mix of concessional and commercial terms — the latter being pegged on the now expired Libor plus a premium.
This month, the SGR loan payments account for just over 84 percent of the country’s total outlay on external debt service, which amounts to $637.02 million (Sh100.6 billion).
The other costs include a semi-annual interest repayment of $31.5 million (Sh4.97 billion) on the $1 billion Eurobond the country floated in mid-2021.
Other significant payments are $23.2 million (Sh3.7 billion) to the Eastern & Southern African Trade & Development Bank (TDB), $19 million (Sh3 billion) to France and $8.07 million (Sh1.3 billion) due to the International Development Association, the World Bank’s concessional lending arm.
Interest on external loans is usually paid on a semi-annual basis — with bilateral and multilateral loans also incorporating principal payments— while sovereign bonds and syndicated loans have their principal paid back in the form of a bullet payment at the end of the loan’s life.
January and July account for the biggest debt service outflows in the year due to the SGR repayments, but this year the biggest spend will be seen in June, when the $2 billion Eurobond contracted in 2014 matures.
Owing to the bullet settlement of this bond, the World Bank estimates that Kenya will spend a total of $2.23 billion on external debt service in June.
The amount includes the last interest charge on the Eurobond ($68.75 million), repayments on syndicated loans from the Africa Development bank (AfDB) and TDB, and bilateral loans from the US, Germany, France, Japan and Italy.
These payments come from the official forex reserves held by the Central Bank of Kenya (CBK), which the State utilises for external loans service as well as importing critical goods such as drugs and fertiliser from the global market.
By Friday, the official forex reserves stood at $6.8 billion, but the State expects this amount to be boosted by proceeds from loans from the IMF and the World Bank starting this month.
