Weak shilling piles pressure on Kenya's external debt


Kenya will have to incur an extra Sh28.1 billion in its external debt following the fall in the value of the shilling against world’s major currencies.

According to a study by the Kenya Debt Relief Network (Kendren), the level of the country’s external debt rose by 5.2 per cent from Sh537.4 billion in June 2009 to Sh565.5 billion last year.

The multilateral share of total external debt also increased due to a disbursement of Sh16.3 billion from the International Monetary Fund (IMF) to support the balance of payments.

"The composition of the external debt in foreign currency has been largely responsible for the increase in external debt in shilling-terms due to depreciation of the Kenya’s currency against international currencies over the last few years," said Vitalice Meja, a consultant at Kendren.

Central Bank of Kenya has come under sharp focus in the recent past over the depreciation of the shilling. Statistics show that the currency has lost seven per cent of its value to the dollar since December last year.[PHOTO:FILE / STANDARD]

Normally, the currency composition of the external debt consists of the euro (38 per cent), dollar (30 per cent), Japanese yen (22 per cent) and Sterling Pound (six per cent).

Kenya’s main external sources of financing are multilateral and bilateral creditors. Multilateral concessional debt amounts to 64 per cent of the total external debt while bilateral creditors account for 35 per cent.

Intense pressure

Commercial debt represents less than one per cent of the county’s total public expenditure.

Last month, the shilling came under intense pressure owing to the increasing cost of crude oil that was brought about by the intensification of "Arab revolution."

The shilling has lost seven per cent of its value — depreciating from 80.57 in December to Sh86 to the dollar, the lowest point ever in close to two decades as demand for greenback outstripped supply.

Even after gaining some ground last week, the shilling depreciated against major international currencies. According to Central Bank’s weekly economic indicators, the shilling depreciated to exchange at an average of Sh 84.11 in the week compared with Sh 83.98 per dollar in the previous week.

The local currency also traded at Sh137.29 per sterling pound, Sh121.64 per euro and Sh100.20 per 100 Japanese yen compared to Sh136.49 per sterling pound, Sh119.95 per euro and Sh98.94 per 100 Japanese yen, in the week ending April 8.

Beneficiaries of such a move are exporters and tourists.