Kenya’s stock of external debt increased by a staggering Sh158 billion in a week after the shilling buckled under the weight of the coronavirus pandemic crisis.
The local currency lost ground against the dollar by 500 basis points, a situation that saw the value of country’s foreign loans as of December last year increase from Sh3.11 trillion to Sh3.27 trillion.
This comes on the backdrop of the country’s reserves of foreign exchange being depleted following poor financial inflows that have impacted tourist receipts and export earnings.
With low forex reserves, the country is staring at a financial crisis, where it will have a problem repaying its dollar-denominated debt.
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By the close of trading yesterday, the shilling was trading at 106.5 against the dollar, compared to an average of 101.3 in December.
More than half of the country’s debt is from foreigners, and a big chunk of the loans is commercial debt, especially sovereign bonds.
Multilateral institutions such as the World Bank, International Monetary Fund (IMF) and the African Development Bank also hold a sizeable chunk of the external loans.
Without adequate dollars of its own, the Treasury mostly refinances most of its external loans - basically borrowing to repay another loan.
However, with the current volatility that threatens to plunge the global economy into recession, it will be difficult for Kenya to borrow from the international market.
The African Trade Insurance Agency noted that African countries are likely to experience challenges raising funds in global markets, with African bond yields rising sharply.
“As a result, planned Eurobonds in Benin, Côte d’Ivoire, Nigeria and South Africa may be delayed or shelved,” said Acting ATI Chief Executive John Lentaigne.
Mr Lentaigne noted that Kenya was among the six African countries that were likely to experience a significant reduction in tourism earnings, representing between five and 10 per cent of gross domestic product (GDP) and 20 per cent of total employment. Others are Madagascar, Mauritius, South Africa, Seychelles and Tanzania.
Kenya has sought outside help in the fight against the coronavirus pandemic, with the World Bank and IMF pledging Sh122 billion.
Besides helping the country address the health and economic impact of the pandemic, the money will also help replenish its forex reserves.
The government, which has been running on empty, made the appeal to the development agencies as the novel coronavirus continued to wreak havoc on the country’s health and economic fronts.
This as the country stares at a major slowdown in its economic growth this year, which the Central Bank of Kenya’s Monetary Policy Committee scaled down to 3.4 per cent from an initial forecast of 6.2 per cent.
It will be the slowest growth since 2009 when it expanded by 2.7 per cent following the effects of the post-election violence a year earlier and a global recession.