Kenya will spend $533,000,000 (Sh69 Billion) this month servicing its external loans, putting fresh pressure on the country’s forex reserves. Reserves were replenished recently through a World Bank Loan.
SGR Loans account for 81% of the July debt payment
Bretton Woods data on public debt shows that the biannual payment to China of $433,000,000 (Sh56.1billion) for loans contracted for construction of standard gauge rail (SGR), will represent 81% of total external debt repayments in July.
Loans taken for the construction of Mombasa to Naivasha rail were in dollar and had both commercial and concessional terms, with floating rates.
There were other significant debt repayments in July
All of the remaining July debts are being paid to various bilateral and multilateral lenders. The Eastern and Southern African Trade and Development Bank, France and the World Bank each received $12.9 million and $22.3 million respectively (Sh2.9billion).
Kenya will pay 31.5 million dollars (Sh4.1billion) semi-annually for the $1 billion Eurobond that was issued in 2021. The bond has an interest rate of 6.3% per year.
Kenyan forex reserves: Impact
These payments will be made from the Central Bank of Kenya (CBK’s) official foreign exchange reserves. At the end of last weekend, these reserves were $7.89 Billion (Sh1.02 Trillion). The reserves are equivalent to about 4.1 months’ worth of imports.
Since last year, the reserves were below what was required to cover four months. However, a World Bank loan of $1.2 billion drawn last month has helped boost them.
By June 20, this infusion had increased reserves to $8.32 Billion. These reserves provided $500 million to pay the remainder of principal on the Eurobonds worth $2 billion that were issued in 2014. The Eurobonds had been largely purchased back in February.
Costs in Kenya are rising due to the depreciation of currency
Kenya has borrowed heavily from China for infrastructure projects, such as power plants, roads, bridges and railways.
The projects were designed to create employment for youth and stimulate the economy.
In recent years, the cost to service these loans increased due to depreciation in the Kenyan dollar. The depreciation of the Kenyan shilling against the dollar has increased both the amount and volume of debt when converted to shillings.
Kenya continues to face pressure from its foreign reserves due to its commitment to service its external debts, notably the SGR loans that China has made in large amounts.
Fluctuating currency rates and increasing interest costs are adding to financial stress, which highlights the complexity of managing international large-scale loans in an unstable economic environment.
As new information becomes available, this post Kenya spends $533 Million on servicing external debt in July could be updated.
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