Share of expensive dollar debt seen falling as shilling gains


By the end of January, Kenya’s public debt stock of Sh11.248 trillion was 55 percent external and 45 percent domestic. PHOTO | SHUTTERSTOCK

The scale of domestic and external debts could have tilted in favour of the latter by January on the impact of a weak shilling and more borrowing from foreign sources.

By the end of January, Kenya’s public debt stock of Sh11.248 trillion was 55 percent external and 45 percent domestic. In absolute terms, external debts surpassed domestic borrowings by more than Sh1 trillion.

“Domestic debt stock was Sh5,058.04 billion (31.3 percent of GDP), equivalent to USD2 31.46 billion, while the external debt stock was Sh6,189.97 billion (38.4 percent of GDP), equivalent to USD 38.51 billion. Domestic and external debt stock accounted for 45 percent and 55 percent of total debt stock, respectively,” Treasury’s January public debt bulletin said.

The latest data which has figures until the end of January could, however, have changed in subsequent weeks owing to the dramatic gain of the Kenyan shilling against major foreign currencies.

The local currency, for instance, has gained 21.16 percent between the end of January to date.

The shilling exchanged at 160.75 units to the US dollar at the end of January but has since rallied to trade at 132.67 units, indicating a substantial fall in the foreign liabilities on account of the positive currency movement.

The Sh6.189 trillion external debts by January were 67.3 percent denominated in US Dollars, 21.4 percent in Euros, 5.1 percent in Chinese Yuan, 3.8 percent in Japanese Yens and 2.2 percent in British pounds.

More borrowing and a steep freefall of the shilling had seen the public debt tilt heavily in favour of external dues in terms of proportions.

The last time domestic and external debts were at a 50:50 was in August 2022, when Kenya had a public debt stock of Sh8.66 trillion, balanced of domestic debts of Sh4.33 trillion and Sh4.32 external debts.

Since May last year, external debts have consistently gained as a share of Kenya’s public debt stock. By May 2023, external debts’ share was 52.5 percent, which rose to 52.9 percent and 53.2 percent in June and July, before a similar consistent gain that hit 54.7 percent in December 2023.

By the end of January 2024, external debt amounted to Sh6.189 trillion (55 percent of the public debt stock), against Sh5.058 trillion in domestic debts (45 percent).

This means that by the end of January, external public debts had surpassed domestic debts by Sh1.13 trillion, according to the latest Treasury reports.

The surge in external debts was on the backdrop of a weak shilling against major foreign currencies against which Kenya has borrowed and more loans by the government from external markets.

The sudden change in the freefall trend since February has slowed the surge and could bring more interesting twists in Treasury’s subsequent reports.

Between August 2022 and January 2024, the shilling shed 31.7 percent of its value against the US Dollar, the currency constituting more than two-thirds of Kenya’s external debts in terms of denomination. But from the start of February and currently, the shilling has gained about half of the value it ceded in 18 months.

The Treasury, in the 2024 Budget Policy Statement (BPS), notes that it intends to maintain a balance on borrowing from domestic and external markets to avoid a situation where more external debts leave the government vulnerable to external shocks.

“Consistent with the objective of minimising costs and risks of public debt, the government will mobilise resources mainly from multilateral and bilateral Development Partners (DPs). Commercial borrowing sources will be utilised as a last resort to fund the fiscal deficit and repay maturing external debts,” it said in the deficit financing policy section of the BPS.

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