Kenya’s debt service costs, which are expected to surge by 22% this fiscal year, are set to rise even further as the East African economy’s currency sinks to all-time lows against the dollar.
Kenya’s Treasury expects to spend a record 1.17 trillion shillings ($10.4 billion) in the year through June on loan repayments, equivalent to about two-thirds of its revenue, according to the parliament’s budget office.
This will be compounded by a 2.6% depreciation by the Kenyan shilling so far this year, after the currency fell to 112.06 per dollar.
In the previous fiscal year, Kenya’s debt repayments jumped by about a fifth to 781 billion shillings on account of the local currency’s depreciation, according to Treasury.
The shilling plunged 7.4% in the year through December, hurt mainly by the uncertainty wrought by the Covid-19 pandemic.
“Recent exchange-rate fluctuations have been more modest,” Tobias Rasmussen, the International Monetary Fund’s resident representative for Kenya, said in an emailed response to questions.
“We continue to view that maintaining exchange-rate flexibility helps the economy absorb potential shocks.”
Slightly more than half of Kenya’s debt is held in foreign currencies. The proportion of external debt in U.S. dollars was 66% by June 2021, and 19% in euros, according to the Treasury.