Kenya’s foreign exchange reserves at the central bank fell off a cliff by KES 65.8 billion (4.55%) to $10.69 billion (KES 1.38 trillion) on July 31, from their peak of $11.2 billion (KES 1.45 trillion) on July 10. The Central Bank of Kenya said that the decline was caused by the repayment of external debts and delayed foreign loan inflows.
Debt servicing
Kenya’s public debt currently stands at KES 11.5 trillion, translating to 70% of GDP, surpassing the 50% benchmark by the IMF for developing economies. 53.9% of the total debt, or KES 6.2 trillion, is domestic debt, whereas 46.1%, or KES 5.3 trillion, is external debt.
In July, the government spent KES 58.5 billion on servicing bilateral loans. KES 55.8 billion was paid to China for loans used to finance the Mombasa-Nairobi-Naivasha standard gauge railway, while 2.7 billion was paid to France. The government also made a semi-annual interest payment of KES 4.1 billion on the 12-year Eurobond. The national treasury allocated 1.9 trillion for debt servicing in the current fiscal year, which is equivalent to 11.7% of GDP and 44.3% of the overall budget.
Exchange rates
Since June 2024, the Kenyan shilling has remained stable at KES 129 per USD. The stability in the exchange rate is attributed to strong remittances and foreign exchange inflows, and the CBK’s interventions. The CBK has actively bought and sold dollars to keep the shilling around the KES 129 level.
According to global ratings agency Moody’s, the dry spell of foreign inflows from loans and outflow of foreign currency through external debt repayments is not only set to trigger the forex reserves but also the exchange rates.
On the delay of foreign inflows, the World Bank has held up KES 97 billion that was supposed to be disbursed to Kenya under the World Bank’s Development Policy Operation amid unmet conditions by the Government of Kenya.
Also Read: Kenya Forex Reserves Fall to a 5-year low due to the Weakening Shilling.
