The government has been forced to increase the money allocated towards repayment of external debts by Sh216.67 billion in the last three months due to the depreciation of the Kenya Shilling.
Controller of Budget (CoB) Margaret Nyakang’o on Tuesday told the National Assembly Committee on Public Debt and Privatisation that the funds have been factored in the supplementary Budget estimates.
She said that the current economic environment had seen the budget of government ministries, departments and agencies (MDAs) reviewed upwards.
“The increase in the supplementary estimates for external debt service by Sh216.67 billion (principal redemption and interest repayment) to Sh839.14 billion from Sh622.47 billion is partly attributed to the depreciation of the Kenya Shilling,” said Dr Nyakang’o.
The CoB attributed the increase in loan interests on the exchange rate fluctuations which she said had a huge impact on the cost of guaranteed debt.
She explained that in the last three months, public debt received the highest Exchequer disbursements of Sh440.4 billion, which accounted for 89.3 per cent of all Exchequer issues for the period under review to service public debt.
“As of April 30, 2023, the exchange rate, for instance, was Sh136.0 to the dollar but the same depreciated to Sh151.4 to the dollar by November 7, 2023. This represented a significant loss in the value of the shilling which in turn affects our debt repayment ability,” she said.
Documents tabled by Nyakang’o showed there was a positive variance of Sh18.09 billion which translates to 2.9 per cent on interest payments on domestic debt and a positive variance of Sh125.61 billion on external debt interest payments which translates to 85.5 percent
“Cumulatively, there is a positive variance of Sh143.7 billion or 18.5 per cent in domestic and external debt interest payments suggesting a significant rise in total interest payments costs,” read the documents.
And to manage the high cost of debt servicing, the CoB wants the government to implement measures to curb the further deterioration of the shilling against the dollar such as public debt restructuring, where an agreement with bilateral creditors to review debt repayment terms is explored.
“Considering the current public debt levels, new public borrowing should only be undertaken for projects that will positively impact the national budget. And as part of the public debt management, there is need for a review of government accounting policies to ensure the accurate reporting of public debt that will match borrowed funds to the projects,” read the documents.