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Strong shilling cuts Kenya’s foreign debt by Sh1 trillion in January
National Treasury and Economic Planning Cabinet Secretary John Mbadi addressing journalists outside the National Treasury Building in Nairobi on February 13, 2025.
Kenya’s external public debt fell by the equivalent of Sh1 trillion in shilling terms last year on account of a strengthening shilling, with the cost of servicing the debt also going down.
Treasury Cabinet Secretary John Mbadi told MPs on Wednesday that the external debt stock declined from Sh6.09 trillion in December 2023 to Sh5.09 trillion in January 2025.
This represents 46.2 percent of total public debt of Sh11.02 trillion, down from 54.7 percent in December 2023, when the total volume of debt was Sh11.14 trillion.
The debt in dollars grew from $38.92 billion to $39.4 billion in the period. The corresponding decline in shilling terms therefore serves to illustrate the positive impact of the shilling’s 21.1 percent gain against the dollar in the period.
The revaluation was also influenced by the shilling’s appreciation by 29.2 percent versus the euro in the period, and by a 24.3 percent gain against the British pound.
Domestic debt meanwhile grew by Sh880 billion in the period to Sh5.93 trillion, raising its share of total debt to 53.8 percent from 45.3 percent a year earlier.
“This reduction is attributed to the appreciation of the Kenya shilling against major currencies during the review period,” said Mr Mbadi in his presentation to MPs.
The stronger shilling has yielded a Sh31.4 billion cut in the interest charges on external debt. The June 2024 budget had set aside Sh259.9 billion for interest payments to external creditors, but this has since been revised down to Sh228.5 billion, as per the latest projections contained in the 2025 budget policy statement.
Principal repayments have also been revised lower, by Sh29.1 billion to Sh301.6 billion, largely due to the foreign currency revaluation.
The lower value of the foreign debt in shilling terms has also helped improve the country’s debt sustainability metrics, including the debt-to-GDP ratio, which declined to 65.7 percent in June 2024 from 72 percent in June 2023. The medium-term debt management plan projects that the debt-to-GDP ratio will fall to 57.8 percent by June 2028, further easing the taxpayer’s debt service burden.
Kenya’s external debt is majorly denominated in dollars and euros, with smaller portions in Japanese yen, Chinese yuan and British pounds.
The dollar accounted for 62.1 percent of the debt as of June 2024, as per the latest Treasury disclosures, followed by the euro at 25.5 percent and the yuan at 5.5 percent. The debt in yen stood at 4.2 percent, and that in pounds at 2.6 percent.
The debt mix reflects the identity of the country’s major external lenders in recent years, with the dollar rising in prominence due to the country’s bias for commercial dollar debt from Eurobonds and syndicated loans, as well as concessional funding from the IMF and the World Bank.
In 2014, the debt in dollars stood at 42.8 percent, and euros at 28.5 percent. Yen-denominated debt stood at 11.5 percent in 2014, and the pound at 4.7 percent.
The rise in prominence of Chinese loans due to the country’s funding of big-ticket infrastructure projects such as the standard gauge railway and roads has helped raise yuan-denominated debt from 4.7 percent to 5.5 percent in the decade.
In terms of creditor mix, multilateral lenders accounted for 55.6 percent of external debt or Sh2.83 trillion in January, with World Bank concessional loans amounting to Sh1.79 trillion.
Bilateral lenders accounted for 21.4 percent of the debt at Sh1.09 trillion, with China the main lender here with outstanding loans of Sh660 billion.
Commercial debt accounted for 23 percent or Sh1.17 trillion in January, the bulk of which was in the form of Eurobonds at Sh850 billion.
The value of outstanding Eurobonds has since then gone up to Sh972 billion following the sale of a new $1.5 billion (Sh194 billion) bond last month, and the buyback of $579.7 million (Sh75 billion) worth of notes from a 2019 bond which reduced its outstanding value from $900 million (Sh116.4 billion) to $320.3 million (Sh41.4 billion).
