Kenya’s public debt has reached a historic high, surging to $76.83 billion by the end of December 2023. The staggering increase of $13.3 billion in just one year has raised concerns about the country’s financial stability, particularly as the Kenyan shilling weakened significantly against the US dollar, shedding 26.8 percent of its value.
According to the Treasury’s quarterly economic and budget review report, the rise in public debt can be attributed to a combination of factors, including external loan disbursements, exchange rate fluctuations, and a rise in domestic debt uptake. External debts accounted for a significant portion of the increase, comprising 73 percent of the total rise in public debt.
The depreciation of the Kenyan shilling against the US dollar had a profound impact on external public debts, as more than two-thirds of these debts are denominated in foreign currency. As a result, the cost of servicing these debts and importing goods increased significantly, further exacerbating the country’s financial challenges.
Despite the significant increase in public debt, there were notable shifts in the composition of debt sources. Multilateral loans, primarily from organizations such as the World Bank and the International Monetary Fund (IMF), saw the highest increase, while bilateral loans from other countries decreased. Meanwhile, domestic debt also saw a substantial rise, driven by increases in debt from non-banks, commercial banks, and the Central Bank of Kenya.
As Kenya grapples with the repercussions of its soaring public debt and currency depreciation, there are growing concerns about the long-term implications for the country’s economic stability and development prospects. With external debts dominating the increase and the shilling’s continued volatility, policymakers face mounting pressure to implement measures to address these challenges and safeguard the nation’s financial future.