Strong shilling slashes Kenya’s external debt by Sh1.2tr, says Thugge
Appreciation of the Kenya shilling against US Dollar has significantly benefited the country’s external debt situation, Central Bank of Kenya (CBK) Governor Kamau Thugge has said.
He reckoned that the development has strengthened the country’s purchasing power and reduced the costs associated with servicing foreign currency-denominated loans.
Thugge who was speaking at the 28th Annual International Conference of the Institute of Certified Secretaries (ICS) in Mombasa highlighted Kenya’s current debt-to- gross domestic product (GDP) ratio, which currently stands at approximately 68 per cent.
Exchange rate
To manage this, parliament recently approved a measure to cap the ratio at 55 per cent by 2027. “Following the exchange rate appreciation, calculated at the rate of 131.5, the external debt has declined from Sh6.19 to Sh5 trillion, a decline of almost Sh1.2 trillion,” Thugge disclosed as he explained the country’s external debt situation as of the end of January 2024.
However, in the last few weeks the Kenya shilling has drastically depreciated against major global currencies.
For instance, data from CBK shows that one dollar was exchanging for Sh131.44 by close of last week, representing a sustained weakening for the local currency since April 11 when the official exchange rate stood at Sh130.35 having aggressively gained from a record low of Sh161 mid-January.
The Sterling Pound had hit a high of Sh204.7687 while the Euro was going at Sh175.9498. In December, CBK hiked the benchmark lending rates to the depreciation of the shilling against major international currencies. Thugge emphasised that this reduction in external debt will alleviate the burden of debt servicing in terms of shillings that the treasury has to pay.
Despite facing various global and domestic challenges, Kenya’s economic performance remains resilient, with a positive outlook.
On inflation, he reported that for most of 2023, global fuel prices were going up contributing to inflation as the situation he said was worsened by the global challenges especially the Gaza war and Houthi attacks in the red sea.
“Because of the crisis in the Red Sea and the Middle East it led to an increase in shipping prices and an automatic increase in fuel prices. Sugar prices have been very high for some reason but in Kenya the situation has been exacerbated by closure of sugar factories,” he said.
Thugge also highlighted the CBK’s proactive measures to address exchange rate pressures and inflation expectations, including policy measures that have been complemented by fiscal initiatives by the government.
These include price moderation for select commodities and subsidies on fertiliser prices to boost food products.
