- The Kenya Shilling eased against major international currencies in the early part of the week ending March 26 but recorded gains towards the end of the week.
- Economists are worried that the country’s debt repayment burden is likely to shoot further as the shilling takes a hit from the effects of coronavirus
Kenyans are set to pay an extra billion to foreign lenders following the ongoing depreciation of the local currency against the dollar.
The shilling which hit a five year low of 107.20 against the greenback last week Tuesday on Coronavirus effects has shed almost six per cent in value since March 1, hurting the fair value of the country’s debt while raising interests on Sh3.1 trillion external loans, mostly denominated in dollars.
The fair value of Kenya’s external debt has since risen to Sh3.3 trillion after the shilling shed six per cent against the greenback, an extra Sh200 billion.
According to the National Treasury, at least 70 per cent of the country’s external debt is denominated in the US dollar. The latest data from the Central Bank Kenya put the country’s total public debt at Sh6.05 trillion.
Economists are worried that the country’s debt repayment burden is likely to shoot further as the shilling continues to take a hit from the effects of coronavirus.
According to Switzerland based financial expert Kasiva Mutisya, it is likely to get more expensive for Kenya to service its debt if the shilling continues to tumble against the greenback.
''It will be more expensive for Kenya as Treasury will have to spend more units of the shilling to acquire dollars to repay debt,’’ Mutisya tweeted.
Mihr Thakar, an economist, echoes her sentiment and financial risk expert who said the depreciation of the shilling has raised the external debt by over 20 per cent of forex reserves.
According to him, the drop in the shilling value has cost the country more than Sh120 billion it is seeking to outside to help in the fight against the coronavirus pandemic.
He told the Star that he was worried about the country’s increasing debt obligation amid low revenue collection. He is however optimistic that the shilling will level up as the coronavirus crisis ease.
''The shilling is dependent on a manageable current account deficit. While most projections do not anticipate a greater current account deficit than -4.9 per cent of GDP in 2020, there are a number of factors that could create pressure in the short-term,’’ Mihr said.
On Wednesday, The World Bank and the International Monetary Fund (IMF) called on international bilateral creditors to suspend debt payments to give developing countries including Kenya time to absorb shocks of coronavirus pandemic.
''This could assist the debt situation since revenues are likely to be constrained with a downward bias and the government will continue having a hefty deficit which it will need to plug through borrowing,’’ Mihr said.
Besides helping the country address the health and economic impact of the pandemic, the money will also help replenish its forex reserves which are expected to drop further on low tourism receipts, minimal horticultural exports and dwindling foreign remittance.
Kenya’ s forex reserves dropped to Sh796.5 billion in the week ended March 26 or 4.8 months of import cover, drown from Sh829.5 billion or 5.04 months of import cover, an indication that CBK spent at least Sh33.1 billion to iron out volatility and cushion the shilling from a further drop.
‘’This meets the CBK’s statutory requirement to endeavor to maintain at least four months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,’’ CBK said in its weekly bulletin.
Kenyans living abroad sent home Sh23 billion ($218.9 million) last month, a drop from Sh26 billion sent in January.
Diaspora remittances to Kenya are expected to fall to the lowest level this year, as consequences of the lockdown in Europe due to coronavirus.
The Kenya Shilling eased against major international currencies in the early part of the week ending March 26 but recorded gains towards the end of the week.
''The initial pressure on the Shilling was due to a strengthening of the US dollar against most currencies, and low supply,’’ CBK said.
Kenya's high debt obligation was however eased in the week ended Friday, March 26 after yields on country’s Eurobonds declined by an average of 122.5 basis points, making them unattractive to investors.
Yields on the 7- year bond maturing in 2027 dropped by 1.72 per cent while the 10-year inaugural bond taken in 2014 to mature in 2024 lost value by 100 basis points.
The 2018 two tranche Eurobond of 10 and 30 years to mature in 2028 and 2048 respectively, on the other hand, lost value by 1.14 and 1.03 per cent respectively.
The Coronavirus pandemic has since seen Kenya revise its economic growth projection, with CBK lowering to 3.4 per cent from an initial forecast of 6.2 per cent, lowest in a decade.