Kenya’s depreciating currency has cost the country nearly half a trillion shillings in external public debt alone, undermining the government’s efforts to pay external creditors.
The shilling, which continues to pose a challenge to the economy, devalued by 9.3 percent from 107.85 units by the end of June 2021 to 117.83 by June 30 this year, from 107.85 units by the end of June 2021 to 117.83 by June 30 this year.
According to a new National Treasury report, while Kenya’s external debt stock decreased by 5% in dollar terms, from $37.1 billion to $35.3 billion in the fiscal year ending June 2022, it increased by Sh156 billion in Kenyan shilling terms, to Sh4.16 trillion.
“The increase in the public debt is attributed to external loan disbursements, exchange rate fluctuation and the uptake of domestic debt during the period,” Treasury stated in the 2021/22 last quarterly budget and economic review report.
Despite government spending to service loans from other countries, multilateral lenders, and foreign commercial banks, the government’s external debt burden increased.
Treasury reported that taxpayers paid a total of Sh305.3 billion to external lenders between July 1, 2021 and June 30, 2022.
This demonstrates that the total impact of the depreciated currency on the external debt burden in the previous fiscal year alone totaled Sh461 billion, or at least 12% of the country’s 2021/22 budget.
“By the end of June 2022, the total cumulative debt service payments to external creditors amounted to Sh305.3 billion. This comprised Sh184.5 billion (60.4 percent) principal and Sh120.8 billion (39.6 percent) interest,” Treasury stated.
The government spent the most (Sh152 billion) on repayments to commercial lenders, followed by bilateral lenders (Sh102 billion) and multilateral lenders (Sh102 billion) (Sh51 billion).
Despite this, the debt stock of multilateral lenders increased by Sh265 billion, while commercial lenders’ debt stock decreased by Sh74 billion and bilateral lenders’ debt stock increased by Sh30 billion.
If the shilling had remained at 107.85 units in mean exchange rate by the end of June 2021, the external debt stock would have been Sh3.8 trillion by the end of June 2022.
In dollar terms, external public debt stock declined by US$1.8 billion from US$37.08 billion by end of June 2021 to US$35.26 billion by the end of June 2022. This comprised debt owed to multilateral (46.3 percent), bilateral (26.6 percent), commercial banks (26.8 percent), and Suppliers Credit (0.3 percent),” Treasury stated.
By June 30, 2022, the debt has been reduced by Sh214.6 billion in terms of exchange rates.
The punishing cost of a depreciating currency, which has been on an accelerated depreciation trend for months now, is felt not only by taxpayers while servicing external debts, but also by businesses when importing goods because they must first purchase dollars.
Companies have recently complained about a severe shortage and high cost of dollars in the market, forcing some to scale back operations.
As businesses pass on the cost when setting prices, the final victim is the consumer. This has resulted in higher commodity prices and an overall increase in the cost of living in the country.
