Strong Kenya Shilling Against US Dollar, Other Foreign Currencies Cuts External Debt To KSh 5.2t

• The Kenya shilling gained strength against the US dollar and major foreign currencies, ranking top among best-performing currencies globally in March 2024
• The Controller of Budget (CoB) report showed that the strength of the shilling saved Kenya from the rising external debt, which is dollar-denominated
• According to financial expert Rufas Kamau, the shilling may continue to strengthen as the government receives more foreign funding, further lowering the external debt

TUKO.co.ke journalist Wycliffe Musalia brings over five years of experience in financial, business, and technology reporting, offering deep insights into Kenyan and global economic trends.

Kenya's external debt has eased in nine months to KSh 5.2 trillion.

Data from the Controller of Budget (CoB) budget review report for the fiscal year 2023/24 showed that total public debt stood at KSh 10.42 trillion as of March 2024.

Why Kenya's external loan balance dropped

This comprised KSh 5.16 trillion or 49.6% of external loans and KSh 5.2 trillion or 50.4% owed to domestic lenders as of March 31, 2024.

CoB Margaret Nyakang'o attributed the decline in external debt during the period under review to the strength of the Kenya shilling.

"Between December 31, 2023 and March 31, 2024, external debt decreased by 15.2%, while domestic debt increased by 9%. This decrease in external debt is due to the strengthening of the Kenyan Shilling against major foreign currencies," Nyakang'o stated in the report.

How Kenya shilling cut public debt

The Kenya Shilling gained value against the US dollar by 24.66 points during the period.

The local currency was ranked among the top-performing currencies globally, surpassing many counterparts, including the British Pound.

Nyakang'o explained that the strength in shilling value against the greenback led to a 15% drop in the country's external debt portfolio.

"The fluctuation of foreign exchange rates significantly impacts the cost of servicing the external debt," said Nyakang'o.

Will the shilling continue to gain?

In an exclusive interview with TUKO.co.ke, market analyst at FXPesa Rufas Kamau explained that there is a possibility of the continued strength of the shilling as the country receives more foreign funding.

Kamau cited President William Ruto's recent state visit to the US, during which Kenya signed multibillion-dollar funding agreements with the country.

"Following President William Ruto's state visit to the US, the Central Bank of Kenya (CBK) expect more US dollar inflows to revamp its foreign currency reserves. This could strengthen the Kenya shilling further towards 120," said Kamau.

According to official CBK rates, the shilling traded at KSh 131.87 against the US dollar as of May 30, 2024.

The regulator maintained that its foreign currency reserves remain adequate for up to four months of import cover.

Kenya's debt servicing

According to the National Treasury, the government spent a whopping KSh 1.24 trillion on debt repayment.

The huge cost of debt service was attributed to maturing internal and external loans, and the full-year amount on debt was expected to hit KSh 1.86 trillion.

The CoB report showed that the revised public debt allocation for the same period is KSh 1.87 trillion, comprising KSh 918.84 billion for interest payments and KSh 947.2 billion for redemptions (principal payments).

Allocation towards servicing external debt amounted to KSh 839.14 billion, comprising KSh 566.66 billion for redemptions and KSh 272.48 billion for interest payments.

Proofreading by Mercy Nyambura Guthua, journalist and copy editor at TUKO.co.ke

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Kamau Thugge said CBK has enough foreign currency reserves that can take up to four months of imports.

Kenyan shilling remains under pressure on strong dollar demand | Reuters

Kenyan Shilling Strength Reduces External Debt to KSh 5.2 Trillion