Overseas investors have lowered risk assessment on Kenya’s ability to repay its fast-rising external debts after the Central Bank of Kenya outlined a plan to borrow up to $1 billion (about Sh149.27 billion) to partly repay the maturing debut Eurobond.
CBK Governor Kamau Thugge last week revealed talks with the Trade & Development Bank and the African Export-Import Bank aimed at raising between $500 million (Sh74.64 billion) and $1 billion in commercial loans before the end of the year.
The proceeds, Dr Thugge told Reuters on the sidelines of the World Bank and IMF meetings in Marrakech (Morocco) last week, would in part be spent on repaying the 10-year $2 billion [Sh301.51 billion as per budget books], which matures in June 2024.
Kenya, he reiterated, “would like to start as quickly as possible … [to] progressively reduce the liability of the Eurobond" to investors through Euronext Dublin, Ireland’s main stock exchange.
This came a week after he disclosed the country was also in talks with the World Bank Group and the IMF for additional support to help repay the debt, developments which were confirmed by the latter’s top official on the continent.
“For Kenya, the authorities are steadfastly addressing this and collaborating with us in the IMF, the World Bank and other donors to further strengthen their economic programme which they have been very much committed to and they are working to secure additional funding while implementing fiscal measures to address some of the funding requirements,” IMF’s Deputy Director for Africa, Catherine Pattillo, told the Business Daily last week.
The yields on Kenya’s 10-year Eurobond maturing June 2024 have eased from a recent peak of 20.29 percent on October 3, a day before Dr Thugge first talked about the latest plan on Eurobond repayment, to 14.93 percent last Thursday.
Falling yield on the Eurobond signals declining risk appetite investors are assigning on Kenya’s ability to repay its debt.
Overseas investors have this year kept a close eye on Kenya's approach to repaying the $2 billion Eurobond ahead of record-high Sh389.45 billion external debt obligations this fiscal year ending June 2024 amid the weakening of the shilling.
The obligations are underlined by the bullet Eurobond payment and estimated Sh112.39 billion due to Chinese lenders, largely Exim Bank of China.
“A recent improvement in the balance of payments gives more scope for the Central Bank to use reserves to meet debt obligations, but sovereign default risks remain elevated,” David Omojomolo, Africa economist for UK-based Capital Economics, wrote in a note reacting to sentiments by Dr Thugge that Kenya could use part of $6.87 billion dollar reserves to repay the Eurobond.
“One thing working in Kenya’s favour is that the fall in the shilling – which is down by nearly 20 percent against the dollar year-to-date – has supported an improvement in the current account position,” Mr Omojomolo wrote.
“The deficit has steadily narrowed and stood at 4.1 percent of GDP in June this year, a level not seen since the late-2000s. Pressure to finance the current account with FX reserves is thus easing, enabling the option of repurposing them for debt repayment.”
Last week’s yield on the maturing 10-year Eurobond was the lowest since September when it stood at 14.73 percent before it started rising after President William Ruto repeated calls for rich nations to restructure and offer reliefs on debt owed by developing counties, without making reference to Kenya.
Dr Ruto had during his speech to the United Nations General Assembly (UNGA) in New York emphasised that 10 low-income countries were in debt distress, and 52 others were at high and moderate risk of falling into distress.
That resulted in yields on Kenya’s Eurobond plunging, peaking at 20.29 percent on October 3 before Dr Thugge addressed a routine post-monetary policy committee meeting a day later.
“We have been engaging our lead managers and lead advisers on how to address the issue of the 2024 Eurobond. We have looked at several options, we are talking with multilateral institutions, the World Bank and the IMF, to see how much additional resources they can make available to us,” the CBK boss told reporters.
The recent rally was the first time the yield had ticked above 13 percent mark since early May when the government was still battling a cash crunch, promoting it to revise upwards the planned $750 million credit facility from the World Bank to $1.0 billion.
The International Monetary Fund and the World Bank have since 2020 classified Kenya at a high risk of debt distress since 2020 as a result of persistently large deficit in annual budgets in more than a decade, which are bridged through borrowing.
Rising debt obligations amid frequent economic shocks such as those related to climate change, Dr Ruto maintained on September 22, have eaten into cash for development projects, slowing down the recovery process from the lingering effects of the Covid pandemic.
