Kenya should limit its next Eurobond issue at below $1 billion (Sh100 billion) as part of a wider slowdown in debt accumulation to avoid going into debt distress, a senior economist at Renaissance Capital says.
Rencap sub-Saharan Africa economist Yvonne Mhango said Monday infrastructure financing gap affecting Kenya and other African countries means that another foray into external markets for financing would be necessary.
But borrowing should be staggered to avoid escalating debt to gross domestic product (GDP) ratios before completed projects can begin to pay off for the economy.
“Kenya will at some point need to go for another Eurobond, but borrowing does go through cycles. Kenya has been through a cycle of heavy spending in infrastructure projects and to ensure that this is sustainable, they (government) need to slow down in terms of spending,” said Ms Mhango in Nairobi on Monday.
“For that reason if they do issue another Eurobond, it should not be at the level of the last one, but rather at about $500 million to $1 billion. This is to ensure the debt level remains sustainable.”
In August, Treasury secretary Henry Rotich said the government would delay borrowing from the external market, citing high cost of money for emerging and frontier market bond issuers.
Bloomberg data shows Kenya’s 10-year Eurobond issue, which matures in 2024 is currently attracting yields of 7.22 per cent, which is the highest rate since September 19.
With the Eurobond being dollar-denominated debt, its rate compares unfavourably with the current domestic debt rates that are as low as 7.8 per cent for the 91-day T-bill.
The downside of such a delay is that pressure will bear on the domestic debt market with the government risking crowding out the private sector with a consequence of slowing down the economy.
Rencap estimates that Kenya’s debt to GDP ratio will rise to about 55 per cent by the end of this year, from 52 per cent in 2015.
While this is still below the lower income countries debt sustainability threshold of 74 per cent, it has raised concern among bodies such as the IMF and World Bank, especially on the share of revenues the country is directing towards debt servicing.
Ms Mhango added that Kenya’s risk of debt distress could be increased from low to moderate.
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