CBK faces debt payment pressure on forex reserves


The Central Bank of Kenya in Nairobi. FILE PHOTO | NMG

The Central Bank of Kenya (CBK) is set to dip afresh into its usable foreign currency reserves before the end of this month as billions in foreign debt repayments come due, just weeks after a dollar injection from the proceeds of an International Monetary Fund (IMF) loan lifted the country’s import cover above its minimum threshold.

The external debt service obligations this month — combining interest and principal repayments —stand at Sh63 billion ($506.7 million), a World Bank tracker on public debt shows.

These obligations are funded from the CBK’s official reserves, which at the end of last week stood at $7.38 billion (Sh917 billion), which was equivalent to 4.13 months of import cover.

The government uses the forex reserves for repayment of external loans and importing critical goods such as drugs and fertiliser.

In the last week of November last year, the import cover fell below the CBK’s desired four-month level and was also well below the East African Community recommended 4.5 months’ cover, amid increasing pressure on the shilling and reduced inflow of foreign financing due to high-interest rate demands by lenders.

The reserves were, however, boosted back above the import cover floor ahead of Christmas by the disbursal to the country of an IMF loan of $447.4 million (Sh55.6 billion), the proceeds of which were sold to the CBK by the Treasury in exchange for shillings.

This boosted the forex buffer to $7.54 billion (Sh937.2 billion) on December 22, covering 4.22 months’ worth of imports.

In total, the government expects to spend Sh378.3 billion ($3 billion) in external debt service in the current fiscal year, indicating the level of strain the rising debt exerts on the CBK’s foreign currency reserves.

January comes with high external debt service obligations, mainly due to repayments of loans incurred from China to fund the construction of the standard gauge railway and a semi-annual interest repayment on the $1 billion Eurobond floated in mid-2021.

China accounts for the bulk of the debt service outflow at $409.86 million (Sh50.9 billion), which consists of interest and principal repayments.

The Eurobond interest due in January stands at $33.5 million (Sh16.7 billion), with the loan carrying an interest rate of 6.3 percent.

Other significant repayments this month include Sh2.5 billion ($20.5 million) to the Trade and Development Bank, Sh2.4 billion ($19.08 million) to France and Sh1.25 billion ($10.05 million) due to the International Development Association, the World Bank’s concessional lending arm.

In February, the external debt service obligations will halve to $255.2 million (Sh31.7 billion), with the TDB accounting for nearly half of this amount at $107.9 million, and Eurobond interest of $77.5 million for the $2 billion loan incurred in February 2018.

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