Kenya’s Sliding Shilling Sends Borrowing Rates Soaring

Kenya is facing challenges due to the devaluation of its currency, the shilling, against the US dollar. This has resulted in a budget shortfall and the need to borrow Sh3.43 billion to meet foreign debt service commitments. 
To protect taxpayers from further debt service requirements caused by foreign exchange exposure, the Auditor-General has recommended implementing hedging strategies.
Recent reports indicate that Sh3.43 billion was allocated in the first half of 2022/23 to cover deficits in payments on external debt caused by fluctuations in foreign currency rates. These concerns arise as the Central Bank of Kenya reveals that as of April 2023, the country’s public debt stands at Sh9.63 trillion, with 52.9% of that being foreign debt—an increase from 50.9% recorded in January—highlighting the impact of the sliding shilling on Kenya’s overall debt profile.
Data from CBK shows that since the beginning of 2023, the shilling has depreciated by 13.9% against the US dollar and is currently valued at 140.52 units.
In an attempt to alleviate pressure on the local currency, the government made an announcement in March regarding a contract to procure petroleum products from Saudi Aramco and the Abu Dhabi National Oil Company on credit for a duration of six months.
Adding to the surprise, the government has paid Sh 680 million for loans that have not yet been utilised during the first half of fiscal year 2022-23. The Office of the Auditor General has raised concerns about the increasing burden of commitment fees associated with secured but unused loans.
The Auditor General is calling for greater transparency and criticising what she refers to as a lack of clarity in how liabilities are documented at both national and local levels of government.
“There is a failure to disclose loans and overdrafts held by other national and county government entities, as well as other government obligations such as pending bills and pension arrears. The government continues to pay commitment fees on unutilized loan amounts between the Kenyan government and foreign lenders. In the first half of 2022/23, the National Treasury paid commitment fees amounting to Sh680 million,” states the audit office report.