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Africa BUSINESS ECONOMY

Kenyan Shilling Strength Reduces External Debt to KSh 5.2 Trillion

In an unexpected development, the Kenyan shilling has shown notable strength against the US dollar and other major global currencies, emerging as one of the top-performing currencies worldwide in March 2024. This surge has been pivotal in alleviating Kenya’s external debt load, according to a report by the Controller of Budget (CoB).

The latest CoB report underscores how the impressive performance of the Kenyan shilling has helped address the country’s escalating external debt, largely denominated in US dollars. As of March 31, 2024, Kenya’s total public debt stood at KSh 10.36 trillion, with KSh 5.16 trillion (49.6%) being external and KSh 5.2 trillion (50.4%) domestic.

Central Bank of Kenya (CBK) governor Kamau Thugge
Central Bank of Kenya (CBK) governor Kamau Thugge speaking at a past event. Photo: Parliament of Kenya. Source: Facebook

Controller of Budget Margaret Nyakang’o pointed out that the shilling’s appreciation significantly contributed to the reduction in external debt.

“From December 31, 2023, to March 31, 2024, external debt fell by 15.2%, while domestic debt rose by 9%. This reduction in external debt is attributed to the Kenyan shilling strengthening against major foreign currencies,” Nyakang’o stated in the report.

The Kenyan shilling gained 24.66 points against the US dollar during this period, surpassing several major currencies, including the British Pound. This led to a 15% reduction in Kenya’s external debt portfolio. Nyakang’o emphasized that changes in foreign exchange rates have a substantial impact on the cost of servicing external debt.

Market analyst Rufas Kamau from FXPesa shared insights on the potential for the shilling’s continued strength. In an interview with TUKO.co.ke, Kamau mentioned that increased foreign funding could further strengthen the shilling, referencing President William Ruto’s recent state visit to the US, where Kenya secured substantial funding agreements.

“After President William Ruto’s state visit to the US, the Central Bank of Kenya (CBK) expects increased US dollar inflows to boost its foreign currency reserves. This could further strengthen the Kenyan shilling towards 120,”

Kamau predicted.
Kenyan Shilling
As of May 30, 2024, official CBK rates showed the shilling trading at KSh 131.87 against the US dollar. Continued inflows of foreign funds are expected to sustain or enhance this strength.

Despite the beneficial impact of a stronger shilling on external debt, Kenya’s overall debt servicing costs remain high. The National Treasury reported that the government spent KSh 1.24 trillion on debt repayment, primarily due to the maturation of internal and external loans, with the full-year debt servicing amount projected to reach KSh 1.86 trillion.
The CoB report detailed a revised public debt allocation of KSh 1.87 trillion for the same period, including KSh 918.84 billion for interest payments and KSh 947.2 billion for redemptions (principal payments). Of this, KSh 839.14 billion was set aside for servicing external debt, comprising KSh 566.66 billion for redemptions and KSh 272.48 billion for interest payments.

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