A weak shilling cost the taxpayer an extra Sh65 billion monthly in the year to June 2023, constituting more than two-thirds of the Sh1.2 trillion increase in the public debt stock.
The weak unit added Sh809 billion to the public debt stock in the 12 months from July 2022, a report by the Parliamentary Budget Office (PBO) reveals.
While the government borrowed Sh310.76 billion from external financiers to fund the budget during the 2022/23 financial year, the external public debt stock rose by Sh1.12 trillion, a scenario the PBO attributes to the fall of the Kenyan shilling against major currencies from which the country has borrowed against.
“The public debt stock stood at Sh10.52 trillion as at end of August 2023, consisting of Sh4.81 trillion and Sh5.71 trillion in domestic and external debt respectively.
“This was driven by a Sh1.62 trillion increase in public debt between June 2022 and June 2023, the highest increase in Kenya's public debt on record. Domestic debt stock increased by Sh503.02 billion while external debt jumped by Sh1.12 trillion partly due to the impact of the exchange rate on both new borrowing and external debt stock,” the PBO stated in the July- September Quarterly Economic and Fiscal update.
The Kenyan shilling depreciated by more than 20 percent against both the US Dollar and the Euro in the year to June, the two currencies that constitute 87.6 percent of Kenya’s external debts.
The PBO noted that in the 2022/23 financial year, Kenya’s net foreign financing amounted to Sh310.76 billion while net domestic financing was Sh459.5 billion. These are the amounts that go into computing what is added onto the public debt stock, from a borrowing perspective.
“External debt is majorly driven by an increase in multilateral financing on account of loans acquired from the World Bank and the International Monetary Fund (IMF), indicating an increased intake of concessional finance. Furthermore, the new level of external debt stock was influenced by the depreciation of the exchange rate primarily the depreciation of the USD and the Euro, which account for 66.7 percent and 20.9 percent of the currency composition of total external debt stock,” the PBO stated.
When the local currency depreciates against foreign currencies against which Kenya has borrowed previously, the respective external debts also increase by percentages similar to the depreciation rate.
In June, the National Treasury, in a statement on disbursements of external loans noted that by June 16, 2023, a total of Sh504 billion had been disbursed from external lenders, including project loans, syndicated facilities, and other forms of financing from the World Bank, the IMF and other external lenders.
“By May 19 May, 2023, Kenya had received a disbursement of $800 million(Sh122.69 billion) from a syndicated facility. An addition of $100 million (Sh15.33 billion) may be disbursed during June 2023 to bring the total syndicate facility to $900 million(Sh138.04billion),” Treasury stated.
Net foreign financing- which is the amount that ideally adds onto the external public debt stock- stood at Sh267.8 billion at that time, according to the then Treasury statement.