As public concern mounts over Kenya’s rising level of public debt, it is emerging that Kenya is in the race to borrow an additional Ksh.792.33 billion over the next 3 years through the issuance of Eurobonds.
According to the International Monetary Fund (IMF), Kenya is set to issue an initial Ksh.249.5 billion ($2.3 billion) Eurobond in the next 18 months for project financing.
Kenya will also issue Ksh.543 billion ($5 billion) Eurobond for the purpose of debt management operations which include the financing of the 2024 Eurobond and retiring of relatively expensive syndicated loans.
“The borrowing plan under the program allows for another $5 billion Eurobond issuance to be used exclusively for debt management operations, which could include a refinancing of the 2024 Eurobond and retiring of relatively expensive syndicated loans,” reads the report.
Kenya already applied and received exemption from the IMF to tap debt from Eurobond issues even as it enjoys concessional financing from both the multilateral lender credit lines and the World Bank’s Development Policy Operations (DPO).
“While Kenya is at high risk of debt distress and subject to zero limits on non-concessional borrowing, the authorities have requested, and staff supports, non-zero limit exceptions for project financing and debt management operations,” stated the IMF.
The IMF expressed confidence that Kenya would be able to access Eurobond debt affordably as global market conditions improve.
“Fiscal adjustment under the program will reduce debt-related risks and put debt as a share of GDP firmly on a declining path by the end of the arrangements. Given the return of more normal global market conditions, staff expect the authorities to be able to access the Eurobond market at reasonable prices.”, said the IMF.
Over the same period running to December 2022, Kenya will be tapping Ksh.521.2 billion ($4.8 billion) in concessional borrowing, externally.
IMF says the domestic market is set to remain as an integral part of public financing.
The National Treasury is seeking to leverage the new borrowing schedule to extend time to maturity on debt as a means to cushion Kenya’s rising debt distress.
“On debt management issues, the authorities emphasized their efforts to extend the maturity of domestic debt and need to pursue a financing strategy that balances domestic and external financing, utilizes concessional financing where available, and accesses private capital markets judiciously,” added the IMF report.
This will be the fifth time Kenya will be issuing Eurobonds in the international market within a period of seven years.
The first Eurobond was issued in June 2014 when Kenya raised Ksh.219 billion before borrowing a further Ksh.82.1 billion. The Treasury later issued two tranches of Eurobonds in 2018 and 2019 to raise a Ksh.449 billion.
Kenya’s debt is sustainable, IMF avers
As to whether Kenya’s public debt is sustainable, the IMF is confident that Kenya will be able to service its debt as the effects of the COVID-19 pandemic on the economic subside and the Government turns to concessional financing to help reduce its commercial debt burden.
“Debt indicators, such as debt service as a share of exports and revenues, have worsened due to the shock. Associated servicing risks would be mitigated by expected increased access to concessional financing in the early years of the program and by progress in putting debt on a downward trajectory.”, said the IMF in its report on Kenya.
To manage the country’s public debt, the IMF has advised Kenya to restrain recurrent expenditure, particularly through a gradual reduction in the wage bill and transfers to public sector entities.
IMF has asked Kenya to consider improving the efficiency and effectiveness of government spending consistent with recommendations in the recent Public Expenditure Review undertaken by the World Bank.