Kenya is reviewing the currency composition of its external debt to reduce currency volatility which has seen the cost of its dollar-denominated loans increase by two per cent 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 per cent in dollars, 19 per cent in euros, six per cent in Japanese yen, six per cent in Chinese yuan and two per cent in pound sterling.
Last year, Kenya’s external debt was $36.9 billion, of which dollar-denominated loans stood at $24.72 billion, 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 per cent ($4.45 million) to $219.39 million.
Kenya has allocated Ksh378.3 billion ($3.28 billion) for external debt repayment in the 2022/2023 fiscal year, comprising external interest payments of $1.19 billion, and external principal repayment of $2.09 billion), 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 $400.8 million from January, with external debt at 74.6 per cent of the national debt.
In Tanzania, dollars dominate the external debt by currency at 69 per cent, followed by the euro at 15.1 per cent and the Chinese yuan at 5.7 per cent.
In Uganda, the shilling appreciated by 3.5 per cent in 2021, with gross external reserves, including the recent Special Drawing Rights allocation, increasing to $4.4 billion (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 external debt stock stood at $ 12.94 billion in 2021, with higher global commodity and energy prices due to the Russia-Ukraine conflict.
