The weighted average interest rate on Kenya’s new external loans rose to 4.6 percent in the year to June 2024 from 3.2 percent a year earlier, the highest going by the available records, reflecting the cost of refinancing the 2014 Eurobond at a higher interest rate.
This is the highest rate that Kenya paid for new external loans in a financial year for at least 15 years, as per available data from the National Treasury.
The higher cost of loans contracted in the period raised the overall average interest rate on Kenya’s external debt to 3.8 percent, from 3.7 percent in June 2023, as per the Treasury’s 2025 Medium Term Debt Management Strategy document which was published last week.
In February 2024, the government borrowed $1.5 billion (Sh193.8 billion) via a new six-year Eurobond, whose proceeds were used to finance a partial buyback of the $2 billion (Sh258 billion) 2014 Eurobond, which was set to mature in June 2024.
The new bond was sold at a coupon of 9.75 percent, while the maturing bond had been paying investors a coupon of 6.875 percent. This meant that the Treasury effectively swapped a cheaper bond for a more expensive one, thereby raising its overall cost of debt service.
The balance of $500 million was settled in June using a part of the proceeds of a $1.2 billion World Bank loan.
External financing conditions were tough in the first half of last year due to elevated interest rates in the West, while lenders had also assigned a high-risk rating on Kenya due to concerns that the country would struggle to refinance the 2014 Eurobond.
Refinancing the 2014 bond however allowed the country to lengthen the average maturity years of external loans to 20.5 years, from 15.7 years in June 2023.
“Global market rates tightened and led to a hardening of borrowing terms. Worsening market conditions were due to global and geopolitical economic shocks including monetary policy tightening in major economies and uncertainties related to the war in Ukraine,” says the Treasury in the debt strategy document.
These hostile financing conditions meant that the 2024 Eurobond was the costliest on Kenya’s books, eclipsing the 8.25 percent annual interest the country pays for the $1 billion, 30-year tranche of the $2 billion bond the country floated in February 2018.
The elevated interest rates on commercial loans—which include Eurobonds, syndicated loans, and other bank financing—risk blunting the benefit to taxpayers of the government’s efforts to pivot more towards concessional lenders such as the World Bank, the International Monetary Fund (IMF).
Kenya’s external debt in June 2024 stood at $39.8 billion (Sh5.15 trillion at the exchange rate of the time), which accounted for 48.8 percent of total public debt of Sh10.56 trillion.
In the year to June 2024, the share of public external debt contracted from multilateral lenders rose to 53.9 percent from 48.7 percent in June 2023, reflecting the drawdown of more than $1.8 billion from the World Bank and the IMF in the period.
At the same time, the share of debt from commercial lenders fell to 22.8 percent from 24.6 percent in 2023, while loans from bilateral lenders declined from 23.1 percent to 21.1 percent.
