Growing concerns have been raised regarding the impact of the weakening shilling on Kenya’s debt profile, particularly as foreign debt accounts for 52.9% of the country’s total debt.
During the first half of the fiscal year 2022-23, the devaluation of the shilling against the US dollar resulted in Kenya borrowing Sh3.43 billion to cover the budget deficit in foreign debt service commitments, as reported by the Auditor-General.
To safeguard taxpayers from increased debt service requirements caused by foreign exchange exposure in the public debt stock, the Auditor-General has urged the Treasury to consider adopting hedging strategies.
Based on information provided by the Controller of Budget, the Auditor-General highlighted that Sh3.43 billion was allocated in the first half of 2022-23 to cover deficits in payments on external debt resulting from fluctuations in foreign currency rates.
These concerns arise at a time when recent data from the Central Bank of Kenya (CBK) reveals that Kenya’s public debt stock stood at Sh9.63 trillion as of April 2023, with foreign debt accounting for 52.9% of the total debt. This percentage has increased from 50.9% in January, reflecting the impact of the weakening shilling on the country’s debt profile.
According to CBK statistics, the shilling has depreciated by 13.9% against the US dollar since the beginning of 2023, with the exchange rate currently at 140.52 units.
In an attempt to alleviate pressure on the local currency, the government announced a credit agreement in March to purchase petroleum products from Saudi Aramco and the Abu Dhabi National Oil Company over a six-month period.
Additionally, the Office of the Auditor General has raised concerns over the payment of commitment fees amounting to Sh680 million for unused loans during the first half of the fiscal year 2022-23. The Auditor-General has emphasized the need for greater transparency and criticized the lack of clarity in recording liabilities at both the national and local government levels.
“There is the non-disclosure of loans and overdrafts held by other national and county government entities as well as other government liabilities such as pending bills and pension arrears. The government continues to pay commitment fees on undrawn amounts in respect of loans signed between the government of Kenya and foreign lenders. Within the first half of 2022/23, the National Treasury paid commitment fees worth Sh680 million,” the audit office reports.