Kenya abandons proposed $1b eurobond citing cost

Kenya has scrapped plans to issue a US$1 billion Eurobond, which was expected for late June, as the rising cost of financing external debt combined with an unrelenting currency devaluation dampened the sustainability of the proposed issuance .

Dr Haron Sirima, Director General of the National Treasury’s Debt Management Office, told The EastAfrican that the Department made the decision “due to high volatility in international capital markets”.< /p>

Yields on 10-year bonds maturing in 2024 and 2028 have already risen sharply and continue to rise amid the Ukraine conflict and announcements by major central banks, including those in the US and UK, that they are signaling higher repayment costs .

Julius Muia, chief secretary of the National Treasury, had previously expressed concerns that the growing Yields on existing Eurobonds could force the government to explore alternative sources of credit to finance the budget deficit.

“We are still keen on the international market for financing, but are cautious about the current high yields. We need to look at returns to keep our funding sustainable,” said Mr. Muia.

Kenyan economist Tony Watima told The EastAfrican that under the prevailing conditions in the Eurobond market, it would be unwise to enter the market.

“Kenya’s debt restructuring plan is to move away from high-risk, foreign-dominated commercial lending and opt for lending on concessional terms. So issuing another Eurobond at this point means we are scaling back the restructuring plan,” said Mr. Watima.

During this fiscal year, Kenya spent US$9.8 billion, about 31 percent of its total debt repayment budget. The Treasury Department estimates it will spend up to $11.6 billion — about 64 percent of expected tax revenue — to pay down the country’s loans in the fiscal year beginning July 1 as rising debt-service costs — cripple the country’s operations manufacturers, with some even considering closing up shop and others requiring customers to pay in dollars instead of shillings.

While Dr. Central Bank of Kenya Governor Patrick Njoroge has dismissed claims of dollar shortages, with the Kenya Association of Manufacturers saying they are unable to access enough dollars in the market at the official price.

Debt distress and risk

The National Treasury Department will still need to continue borrowing to bridge its $7.4 billion budget deficit in fiscal 2022-23, but must now evaluate other options.

“We continue to borrow externally on concessional loans with a strong tendency to support the balance of payments and ensure private sector displacement,” said Dr. Sirima told The EastAfrican.

In addition to the loans made on better terms, Dr. Sirima, growing revenue collection, as observed in recent months, will help contain the budget deficit.

According to the International Monetary Fund’s latest debt sustainability report, released in March 2021, Kenya’s risk remained an external and general debt crisis, exacerbated by economic shocks, falling exports and economic growth prospects.

Kenya has the highest debt in the region at US$70.7 billion – 68.4 percent of GDP and a “high” risk of a debt crisis.

Burundi also faces a high risk of an external and general debt crisis, with a $1.9 billion debt, 67% of GDP, according to the latest IMF statistics.< /p>

Uganda with a debt of $20.7 billion (49.7% of GDP). ) is the least affected by debt problems in the region and has been rated “Low” by the IMF.

Tanzania was recently upgraded to a moderate risk level after its debt ratio rose to 60.6 percent of GDP in March (March 37). .8 billion US dollars).

Rwanda’s risk also remains moderate, although the IMF estimates its debt level at 80 percent of GDP by the end of 2022.

Nevertheless, the Kenyan parliament voted on 7 June for raising the country’s debt ceiling from Ksh 9 trillion (US$76 billion) to Ksh 10 trillion (US$85 billion) to allow borrowing of the US$7.4 billion budget deficit for the fiscal year beginning July 1.

Parliament earlier raised the ceiling to Ksh 6 trillion (US$51.2 billion) in October 2019, when the debt ratio was expected to be 55 percent of GDP that it will reach US$55 billion (Ksh 6.4 trillion) in eight months would.