Kenya’s foreign exchange reserves have declined by Sh65 billion in recent weeks, primarily due to significant external debt service obligations, placing renewed pressure on the country’s balance of payments position.
The drop highlights the rising fiscal burden posed by maturing Eurobonds and other external commitments, which continue to demand large outflows of hard currency.
Data from the Central Bank indicates that forex reserves now stand just above the statutory minimum threshold of four months’ import cover.
This sharp decline has reignited concerns over Kenya’s external liquidity buffers, particularly as global interest rates remain elevated and capital inflows remain subdued.
The repayment of interest and principal on sovereign bonds, coupled with syndicated commercial loans, accounted for the bulk of the reserve depletion.
The fall in reserves comes at a time when the shilling remains under pressure, with modest support from diaspora remittances and export receipts.
Analysts warn that if reserve levels continue to slide, the Central Bank’s ability to defend the currency against volatility could be constrained.
This would potentially expose the country to exchange rate shocks, imported inflation, and reduced investor confidence.
Kenya’s debt maturity profile remains front-loaded, with several repayments scheduled between now and 2027. While the country recently tapped multilateral funding lines to ease near-term pressure, the combined effect of debt servicing and external sector demands continues to weigh on dollar reserves.
Market observers are also closely watching for any impact on credit ratings and the government’s ability to roll over existing obligations.
Despite recent efforts to enhance revenue collection and manage public expenditure, Kenya’s debt servicing costs remain one of the highest in the region as a share of government revenue.
In light of this, policymakers are expected to explore measures to bolster reserves, including concessional borrowing, targeted inflows from development partners, and stronger export sector performance.
Stabilizing the reserves will be critical not only for monetary policy stability but also for broader macroeconomic resilience in a period marked by global uncertainty and domestic fiscal strain.
Written By Ian Maleve
