Kenya's Forex Reserves Plunge Amid Heavy Debt Repayments

Kenya's forex reserves dropped by USD 487 million over a week due to significant external debt repayments. This decline impacts local currency support and reduces import cover from 4.1 to 3.9 months. Major repayments included loans from China for the Standard Gauge Railway project.

Kenya's foreign exchange reserves have taken a significant hit, plummeting by USD 487 million (about KES 63.9 billion) in the last week, according to a report by Business Daily. This decline follows substantial external debt repayments, notably impacting resources crucial for supporting the local currency.

The drop in reserves coincides with the government's payment of USD 533 million (about KES 70 billion) in external loans, including USD 433 million (KES 56.8 billion) used to service a loan from China for the Standard Gauge Railway construction.

The Central Bank of Kenya's (CBK) latest bulletin indicates that the forex reserves fell to USD 7.409 billion on July 18 from USD 7.896 billion on July 11. This reduction has decreased the import cover from 4.1 months to 3.9 months, which measures how long foreign exchange reserves can finance imports.

In the 2014-15 fiscal year, Kenya borrowed USD 5.08 billion (KES 667 billion) for the Mombasa-Naivasha railway project. Following recent repayments, the Kenyan shilling has weakened from KES 163 per dollar earlier this year to KES 131 per dollar. The Business Daily previously reported that Kenya spent KES 152.69 billion (approximately USD 1.15 billion) repaying China in the last fiscal year.

This amount included USD 705.05 million (KES 100.47 billion) in principal repayments and USD 366.46 million (KES 52.22 billion) in interest. Additionally, Kenya paid USD 286.04 million (KES 40.76 billion) more than initially planned for the fiscal year. Beijing's secretive loan terms with developing countries like Kenya often oblige borrowers to prioritize repayments to China, placing a considerable burden on the Kenyan public.

(With inputs from agencies.)