Loans In Kenya Now 60% More Expensive Than In Tanzania And Rwanda

Rwanda boasts the most affordable domestic loans among East African Community member states, outpacing its regional counterparts, including Kenya. Recent data reveals that Kenya’s domestic market loans are now 60 percent more costly compared to Tanzania and Rwanda, underscoring heightened investor risk associated with lending to the Kenyan government during a critical need for financial resources.

The surge in Kenya’s overall public debt in recent years, climbing from 44.4 percent of GDP in 2015 to 71 percent in 2020, reflects substantial deficits driven by extensive spending on major infrastructure projects and exacerbated in 2020 by the global shocks of the Covid-19 pandemic.

Notably, about half of Kenya’s public debt is owed to external creditors.

The severe dollar shortage in Kenya has deterred investors, causing a downturn in the once-thriving stock market, making Nairobi’s All-Share Index the world’s worst-performing this year with a 19% decline.

The Central Bank of Kenya (CBK) reports that the depreciation of the Kenyan shilling has breached the East Africa Community’s forex reserves policy.

According to this policy, member countries are mandated to maintain reserves equivalent to at least four months of import cover. Unfortunately, Kenya’s reserves have fallen below this required threshold since January 26.

Economic experts suggest that the Kenyan currency is yet to fully recover from the global economic crisis triggered by the Covid-19 pandemic, which significantly impacted the country’s key exports, resulting in reduced inflows.

The Kenya Association of Manufacturers (KAM) highlights the challenges faced by many manufacturers and processors due to the scarcity of dollars in commercial banks, hindering their ability to source raw materials from foreign markets.

Several factors, including declining exports, high import bills, and reduced remittances, have contributed to the dollar shortages, prompting some companies to seek foreign currency in neighboring Tanzania.