Forex stock plunges 70 billion shillings on repayment of SGR loan

Capital markets

Forex stock plunges 70 billion shillings on repayment of SGR loan


The Central Bank of Kenya, Nairobi. FILE PHOTO | NMG

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Summary

  • Hard currency reserves, held by the Central Bank of Kenya (CBK), increased from $8.817 billion (1.001 trillion shillings) in early January to $8.196 billion (931.3 billion shillings) on February 10.
  • Kenya borrowed a total of $5.08 billion (577 billion shillings) in 2014 and 2015 from China to finance the Mombasa-Naivasha SGR line.
  • Interest on external loans is paid on a semi-annual basis—bilateral and multilateral loans also provide for principal repayments.

Kenya’s official foreign exchange reserves have fallen by $621 million (70 billion shillings) since the start of the year, largely due to loan repayments from China for the construction of the standard gauge railway. .

Hard currency reserves, held by the Central Bank of Kenya (CBK), increased from $8.817 billion (1.001 trillion shillings) in early January to $8.196 billion (931.3 billion shillings) on February 10.

World Bank data shows that Kenya’s external debt payments in January amounted to $458.7 million (52.1 billion shillings), of which $388.6 million (44.2 billion shillings) were owed to China in interest and principal repayments.

Kenya borrowed a total of $5.08 billion (577 billion shillings) in 2014 and 2015 from China to fund the Mombasa-Naivasha SGR line, with loan repayments starting in January 2020 after a five-year grace period. year.

Other large repayments of interest and principal in January went to the Trade and Development Bank (TDB), which received $21.45 million (2.44 billion shillings), and to France, which received $20.83 million (2.37 billion shillings).

Interest on external loans is paid on a semi-annual basis – with bilateral and multilateral loans also incorporating repayments of principal – while sovereign bonds and syndicated loans see their principal repaid as a bullet payment at the end of the term of the loan.

This month, external debt service amounts to 244.2 million dollars (27.7 billion shillings), mainly comprising a payment of 12.5 billion shillings to the TDB and 8.8 billion shillings of interest for the 2 billion Eurobond (227 billion shillings) issued in February 2018.

Although the CBK does not normally disclose details of its expenditure on foreign exchange reserves, the funds are mainly deployed to make external payments on behalf of the government and to support the depreciation of a shilling in the face of volatility through sales. in dollars on the local market.

It in turn acquires the reserves by buying the proceeds of an external loan from the Treasury or by buying dollars on the local market, particularly when the shilling appreciates against the dollar.

These reserves are therefore essential to support the stability of the shilling and also act as a signal to the market that the regulator has enough firepower to defend against volatility, thereby discouraging speculative trading in the currency.

The shilling has steadily weakened over the past six months, meaning some of the reserves may have been deployed to support its stability in January.

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