The government will spend $531.48 million (Sh68.7 billion) towards external debt repayments this month, denting the official forex reserves which are currently at an all-time high of $11.09 billion (Sh1.43 trillion).
The obligation represents a decline from the $546.75 million (Sh71.03 billion) that was paid out in July 2024, largely on account of falling interest rates on floating rate loans.
January and July usually account for the biggest external debt service load due to principal and interest payments to China for the $5.08 billion (Sh656.5 billion at today’s rate) loans contracted in 2014 and 2015 for construction of the Mombasa-Nairobi-Naivasha standard gauge railway.
The loans were on a mix of concessional and commercial terms —the latter being pegged on the now expired London Interbank Offered Rate plus a premium.
A World Bank analysis of Kenya’s continuing external debt obligations shows that the payments to China stand at $431.9 million (Sh55.8 billion), comprising a principal charge of $305.64 million (Sh37.66 billion) and interest of $126.26 million (Sh15.6 billion).
The SGR repayments kicked in from 2019 after a five-year grace period. This month, the SGR payments account for 81.3 percent of the country’s total outlay on external debt service.
While the principal charge on the China debt remains unchanged compared to the same month in 2024, the interest costs on the loan have dropped by $13.4 million (Sh1.65 billion) from $140.7 million (Sh17.3 billion) a year ago.
This reflects the general decline in interest rates globally over the period, which has helped reduce the cost of sovereign loans that carry a floating interest rate pegged on benchmarks such as the Secured Overnight Financing Rate.
A stable shilling exchange rate over the past one year has also helped stabilise the cost of external loans for the government. The local unit is currently trading at an average of Sh129.23 versus the dollar, little changed from the average rate of Sh129.92 at the end of July 2024.
The Treasury normally buys dollars from the CBK to make its external payment obligations such as debt service and government supplies imports, and it also sells the dollars it receives from foreign loans to the monetary authority.
The movement of the exchange rate can therefore lower or raise the amount in shillings required to service external debt, even when the amount in dollars is constant.
Other significant debt obligations this month include a semi-annual interest payment of $31.5 million (Sh3.88 billion) on the $1 billion, 12-year Eurobond that the country floated in mid-2021. The bond carries an annual coupon rate of 6.3 percent.
The Eastern & Southern African Trade & Development Bank is due to receive payments of $20.88 million (Sh2.57 billion), while bilateral lender France will be paid $19.53 million (Sh2.4 billion), as per the World Bank disclosures.
Interest on external loans is usually paid on a semi-annual basis, with bilateral and multilateral loans also incorporating principal payments. Sovereign bonds and syndicated loans have their principal paid back in a bullet payment at the maturity date of a loan.
