Kenya’s additional foreign debt repayments have surged by KES 27.23 billion due to aggressive interest rate hikes by central banks in wealthy nations and the persistent depreciation of the country’s currency, according to the Treasury. As a result, the budget allocated for development projects has been affected. Lawmakers have granted approval for an increase in external debt expenditures for the current financial year, rising from the projected KES 362.22 billion in February to KES 389.45 billion. The rise in spending on foreign debt is attributed to increases in floating rate bases, which are linked to reference rates such as the London Inter-Bank Offered Rate (Libor) and the US prime rate. Global reference rates have recently surged due to continued interest rate hikes by central banks combating inflationary pressures.
The depreciation of the Kenyan shilling against the US dollar has further added to the debt burden. Despite efforts by the central bank to stabilize the exchange rate and a government-backed fuel import deal, the currency has lost around 13.84% of its value against the dollar since the beginning of the year. The depreciation of the shilling increases the cost of repaying foreign debt and puts pressure on taxpayers.
The rising debt servicing costs have constrained the government’s ability to allocate funds to critical development projects, including infrastructure, affordable housing, healthcare, and power generation, which are vital for industrial development and job creation. The Treasury data reveals that interest expenses on foreign debt have increased by KES 16.50 billion (11.92%), reaching KES 154.94 billion, while redemptions have risen by KES 10.74 billion (4.80%), totaling KES 234.51 billion compared to earlier projections.
The increasing debt burden is a result of extensive borrowing during the previous administration to fund infrastructure projects, such as roads, power lines, and a modern railway. Kenya’s mounting debt is comprised of Eurobond offerings, Chinese loans, and syndicated commercial loans, placing significant strain on the country’s finances.
Since 2020, both the International Monetary Fund (IMF) and the World Bank Group have classified Kenya as being at high risk of debt distress due to persistent large budget deficits that are financed through borrowing. The Treasury acknowledges the need to reduce the overall fiscal deficit and achieve a sustainable debt position over the medium term. However, the rising debt servicing costs pose a challenge to these objectives and hinder the country’s economic development amid growing poverty levels and youth unemployment.
