Kenya is tomorrow expected to pay an outstanding Sh64.6 billion ($646 million) of the syndicated loan it took in 2015, in what could immediately cut down the mountain of foreign exchange reserves that has been growing in recent weeks and possibly weakening the shilling.
The Central Bank of Kenya (CBK) reserves jumped by nearly $700 million (Sh70 billion) last week to hit an all-time high of $9.5 billion (Sh950 billion), equivalent to 6.35 months of import cover.
The build-up of reserves has since seen the shilling strengthen against major currencies in tandem with rising amounts of dollars in the market.
Kenya struck a $750 million syndicated loan agreement with a consortium of lenders on October 28, 2015 with stated maturities of April 27, 2018.
Kenya’s outstanding indebtedness under the 2015 syndicated loan facility is $646 million, according to the prospectus for the recently raised $2 billion Eurobond.
The Treasury’s Debt Department did not respond to queries on the imminent payment.
Kenya is, however, sitting on a strong reserves position even with the repayment, which will leave the CBK with five months of import cover that is expected to limit the impact of the transaction on the shilling.
Importers of machinery and fuel have been the major beneficiaries of the recent appreciation of the shilling even as their counterparts exporting tea, coffee and horticultural products feel the pain of a strong currency.
Kenya is a net importer of goods and services that greatly benefits from the positive effect of a stronger shilling through cheaper foreign goods and lower cost of servicing foreign debt.
The CBK and forex dealers said early this week that there was increased build-up of dollars as a result of inflows from foreign investors and the agricultural exports.
“The shilling strengthened against the US dollar supported by flows from [the] agriculture sector and offshore investors,” said the CBK without identifying the foreign investors or the agricultural exports that brought in the inflows.
The central bank did not respond to queries on the looming payment of the syndicated loan.