Serrari Group

Kenya's Public Debt Composition Shifts Amid Shilling's Strengthening

Recent months have brought notable changes to Kenya’s public debt profile, influenced by the strengthening of the Kenyan shilling against major currencies. As of January, the country’s total public debt stood at Sh11.248 trillion, with external debt accounting for 55 percent and domestic debt 45 percent.

At the end of January, external debts surpassed domestic borrowings by over Sh1 trillion. Specifically, domestic debt stood at Sh5,058.04 billion, while external debt reached Sh6,189.97 billion.

The shilling’s significant appreciation in recent months, rising by 21.16 percent against major currencies, has reshaped this balance. Notably, the exchange rate against the US dollar improved from 160.75 units in January to 132.67 units presently, easing the burden of dollar-denominated debts.

In January, a considerable portion of Kenya’s external debts, totaling Sh6.189 trillion, were denominated in US Dollars, representing 67.3 percent of the total. However, the strengthening shilling is expected to mitigate the impact of these dollar-denominated obligations.

This surge in external borrowing has been driven by various factors, including currency fluctuations and increased government loans from international markets. However, the government remains committed to balancing borrowing between domestic and external sources to reduce vulnerability to external shocks.

Outlined in the 2024 Budget Policy Statement is the government’s strategy to minimize costs and risks associated with public debt. It emphasizes prioritizing resources from multilateral and bilateral development partners, with commercial borrowing being a last resort for funding fiscal deficits and repaying maturing external debts.

While the rapid appreciation of the shilling since February has slowed the increase in external debts, ongoing shifts in Kenya’s public debt structure underscore the importance of prudent debt management practices in navigating economic uncertainties.

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By: Montel Kamau

Serrari Financial Analyst

28th March, 2024

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