Kenya moves to reduce interest on foreign debt

Kenya is reviewing the currency composition of its external debt in order to reduce currency volatility that has seen the cost of its dollar-denominated loans increase by two percent in four months.

Haron Sirma, director-in-charge of Debt Management at the Treasury, said the proposal is aimed at reducing foreign exchange costs.“On the external debt stock, we seek to match the currency composition with the country’s foreign exchange holdings,” said Mr Sirma. “The characteristics of a country’s external debt by currency should mirror the foreign currency inflows through exports and remittances. This minimises forex costs through exchange rate movement.”Kenya borrows externally in five major currencies — 67% in dollars, 19% in euros, 6% in Japanese yen, 6% in Chinese yuan and 2%in pound sterling.

Last year, Kenya’s external debt was $36.9bln, of which dollar-denominated loans stood at $24.72bln, according to the Treasury.

However, the local currency has depreciated significantly against the dollar to trade at Ksh115.48 on April 19, from Ksh113.13 on January 3. This has raised the dollar-denominated debt burden by 2.07% ($4.45 mln) to $219.39 mln.

Kenya has allocated Ksh378.3bln ($3.28bln) for external debt repayment in the 2022/2023 fiscal year, comprising external interest payments of $1.19bln, and external principal repayment of $2.09bln), according to the Treasury.

In Tanzania, the shilling remained stable, trading at Tsh2,309.61 to the dollar in February, from Tsh2,309.23 in January, according to the Bank of Tanzania. The stock of national debt was $38 billion in February 2022, an increase of $400.8mln from January, with external debt at 74.6%of national debt.

In Tanzania, dollars dominate the external debt by currency at 69%, followed by the euro at 15.1%and the Chinese yuan at 5.7%.


In Uganda, the shilling appreciated by 3.5% in 2021, with gross external reserves, including the recent Special Drawing Rights allocation, increasing to $4.4bln (4.2 months of imports) in December 2021.“If the exchange rate were to depreciate significantly, partly on account of higher demand for foreign currency and monetary policy tightening in advanced countries, this would increase the overall inflation pressures and foster a need for tightening monetary policy going forward,” said the Bank of Uganda.

Uganda’s stock of external debt stood at $12.94bln in 2021, with higher global commodity and energy prices due to the Russia-Ukraine conflict.

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