Kenya's external debt is likely to rise by close to Sh1 trillion in a year to December if the shilling continues to tumble against the US dollar.
This means the debt value could rise to Sh5.67 trillion, a 21 per cent increase from the value record of Sh4.7 trillion in December last year.
Latest weekly data by the Central Bank of Kenya (CBK) quoted the country's external debt at Sh5.5 trillion as at June this year, having gone up by Sh1.16 trillion from June last year.
Yesterday, the local currency hit a new low of 147 units against the greenback, having shed 22 per cent in the past year.
It traded 120 units on a day like this last year, meaning it has lost 27 units in value in the last 12 months.
The devaluation has already pushed up its obligation on external debt by Sh1.2 trillion since last year when the shilling averaged 117.50.
According to financial consulting firm PKF, the country's foreign debt increases by Sh40 billion any time the shilling drops a unit against the US dollar.
Economic experts who spoke to the Star expressed concern that the current financial crisis in the global market, fast-changing geopolitics and high global fuel prices could push up Kenya's external debt obligation by more than Sh500 billion every year, as the shilling tumbles further.
Early this year, the head of FICC Research and chief economist for Absa Jeff Gable projected the shilling to trade as high as 150 units against the greenback by the end of the year, it is currently trading at 147.14.
Most of Kenya's external debt which accounts for 51 per cent of the country's total public debt, is denominated in US dollars, with the latest data from the National Treasury showing that it accounts for 71 per cent of external debt.
Other currencies including Euro, the Japanese Yen, the Chinese Yuan, and the Sterling Pound hold debt at 18 per cent, 6.6 percent, 5.4 per cent and 2.5 per cent, respectively.
According to the exchequer's public debt management, public debt acquired in the US currency has grown from 42.3 per cent in 2014 on account of commercial debts and sovereign bonds.
Yesterday, PKF termed the ballooning debt as worrisome but maintained that it can be sustainable if the economy grows 7-10 per cent.
PKF CEO Alpesh Vadher told the Star that the country has no option but to restructure some of its external debt.
''However, an economic growth rate of at least seven per cent is unlikely in the current situation considering the global supply chain disruption by Covid-19 and the prevailing effects of the Russia-Ukraine war,'' Vadher said.
The country's total public debt as of June stands at Sh10.2 trillion, or about 63 per cent of Gross Domestic Product (GDP).
The rising debt pressure has occasioned the downgrading of Kenya's risk of external debt distress from moderate to high by credit rating firms such as Moody's.
In May, it downgraded Kenya's long-term foreign-currency and local-currency issuer ratings and senior unsecured debt ratings to B3.
The rating had previously been B2, with a negative outlook.
The rating downgrade was driven by an increase in government liquidity risks, Moody's said.
Credit rating firm Fitch also downgraded the country's creditworthiness in July.
It revised Kenya’s long-term foreign currency issuer default rating to negative from stable, meaning it is at high risk of loan defaults.
The International Monetary Fund also downgraded the country’s debt-carrying capacity from strong to medium in April 2021.
However, the report reveals that Kenya’s debt remains sustainable.
To cut down on the pressure, the government is pushing a plan to revert the debt ceiling to a measure of GDP as opposed to an absolute figure, a move that has been opposed by economists and civil rights agencies.
The country was then looking at a budget deficit of Sh846 billion in the current financial year, a move that has pushed the current debt to above Sh9 trillion mark.
It, however, expects the deficit to decline to Sh675 billion by the end of the medium term.