Kenya Needs to Boost Foreign Reserves to Cover External Debt

(Bloomberg) --

Kenya needs to increase its foreign reserves in order to keep up with repayment obligations on mounting external debt in East Africa's biggest economy, according to a parliamentary report.

“Enhanced foreign reserves are needed to cover the increasing foreign debt repayments,” the Parliamentary Budget Office, which advises lawmakers, said in the report. “Between 2010 and 2018, the interest payment on foreign debt has increased from 1% of exports of goods and services to about 8%.”

A 10-year $2-billion Eurobond raised by Kenya in 2014 matures in 2024. Other foreign currency debt repayments which are due include repaying the loan for a Chinese-built railway. Servicing these debts will likely put pressure on foreign income because of the need to finance the obligations, according to the report.

Kenya's ratio of debt service to exports was 29.3% and that to revenue stood at 45.2% as at December 2019, in breach of the thresholds set by the International Monetary Fund and signaling sustained pressure on both domestic and foreign income, the report noted. The set thresholds are 21% and 30%.

Read: Kenya Favors Domestic Loans After Dollar-Debt Binge Proves Risky

Kenya's reliance on diaspora remittances to accumulate foreign reserves is fraught with volatility risks due to curbs on immigration in the U.S. and Europe, the report added.

The central bank has announced a four-month plan to buy dollars from commercial banks as a strategy to boost reserves.

To contact the reporter on this story: David Herbling in Nairobi at dherbling@bloomberg.net

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Dulue Mbachu, David Malingha

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