The National Treasury is eyeing savings of about Sh24 billion in the cost of servicing its external debt this month, compared to January 2024, thanks to a stronger shilling that has reduced its cost of buying dollars from the Central Bank of Kenya (CBK).
A World Bank analysis of Kenya’s continuing external debt obligations puts the payments for January 2025 at $623.57 million, which at the current exchange rate is equivalent to Sh80.62 billion.
In January last year, the debt obligation stood at $651.94 million, which was equivalent to Sh104.1 billion at that month’s prevailing average exchange rate of Sh159.69 to the dollar.
The Treasury normally buys dollars from the CBK to make its external payment obligations such as debt service and government supplies imports, and it also sells the dollars it receives from foreign loans to the CBK.
The strengthening of the shilling against the dollar by 21 percent over the past year has worked to ease the Treasury’s debt service burden in shilling terms—it will spend fewer shillings to acquire the necessary dollars for the payments.
January and July account for the biggest debt service outflows in the year due to principal and interest payments to China for the $5.08 billion (Sh656.7 billion at today’s rate) worth of loans contracted in 2014 and 2015 to fund the construction of the Mombasa-Nairobi-Naivasha Standard Gauge Railway (SGR).
The SGR repayments kicked in in 2019 after a five-year grace period. This month, the SGR payments account for 83.9 percent of the country’s total outlay on external debt service.
World Bank filings show Kenya is paying China $522.92 million (Sh67.6 billion), out of which $294.43 million (Sh38.06 billion) covers principal repayments and interest charges of $228.49 million (Sh29.54 billion).
In January 2024, the China debt payment stood at $552.31 million (Sh88.2 billion at the January 2024 average rate). While the principal dues remain unchanged year on year, the interest charge last year was higher at $257.9 million.
The loans were on a mix of concessional and commercial terms—the latter being pegged on the now-expired Libor rate plus a premium.
Other significant debt obligations this month include a semi-annual interest payment of $31.5 million (Sh4.07 billion) on the $1 billion(Sh129.14billion), 12-year Eurobond that the country floated in mid-2021. The bond carries an annual coupon rate of 6.3 percent.
Kenya is also paying $21.76 million (Sh2.81 billion) to the Eastern & Southern African Trade & Development Bank (TDB), $20.17 million (Sh2.6 billion) to France, and $14.07 million (Sh1.82 billion to the World Bank as part of its January external debt obligations.
Interest on external loans is usually paid on a semi-annual basis, with bilateral and multilateral loans also incorporating principal payments. Sovereign bonds and syndicated loans have their principal paid back in a bullet payment at the maturity date of the loan.
The January payments are also set to dent the CBK’s forex reserves war chest, which has been augmented in recent months by a drawdown of a loan from the International Monetary Fund (IMF) and dollar purchases from the open market.
The IMF wired $601.1 million (Sh78.4 billion) to Nairobi last November after concluding the seventh and eighth reviews of its four-year, $4.15 billion funding programme, which expires in April with one more expected drawdown of up to$850 million.
At the end of last week, the CBK’s forex reserves stood at $9.198 billion (Sh1.19 trillion) having gone up by $1.4 billion (Sh180.7 billion) from $7.8 billion (Sh1.01 trillion) in June 2024.
These reserves are enough to cover 4.7 months’ worth of imports, keeping Kenya above its preferred threshold of four months' cover and the East Africa Community convergence level of 4.5 months.
