Kenya opens talks with IMF, World Bank on Eurobond repayment

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Kenya has started talks with the International Monetary Fund and other development financial institutions for a new loan. PHOTO | SHUTTERSTOCK

Kenya has started talks with the International Monetary Fund (IMF) and other development financial institutions for a new loan to help it settle the $2.0 billion (Sh297.6 billion) Eurobond whose repayment is due in June 2024.

The government is leaning to the multilateral institutions following tightness in the global markets which has rendered the issuance of fresh debt to refinance maturing debt an improbable route to settle the maturity which is eight months away.

IMF’s Deputy Director for Africa, Catherine Pattillo, told the Business Daily that the request for additional financing and the amount Kenya is seeking will be a key item during the upcoming review mission expected in December.

Kenya has so far tapped $2.1 billion (Sh312.5 billion) from the ongoing programme with the IMF including the second largest drawdown of $410.0 million (Sh61.0 billion) that was approved by the Fund’s executive board following the conclusion of the fifth review mid this year. The fund extended Kenya’s programme by 10 months to lapse in April 2025.

“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,” Pattillo says.

“Working with us, we will have an upcoming review mission and the team will be in dialogue with the authorities and other donors to continue to develop a programme that’s going to help implement those reforms. Those reforms are intended both to reduce debt vulnerabilities and ultimately help Kenya in regaining access to the markets,” the IMF official says.

This revelation from the IMF comes amid the appointment of Citi and Standard Bank as the lead arrangers for Kenya’s planned return to the global markets for a new Eurobond.

The Central Bank of Kenya (CBK) has indicated that the government is leaning more towards tapping into concessional financing to settle the maturing obligation.

“Currently, the credit market conditions are not favourable for refinancing the Eurobond. 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,” CBK Governor Kamau Thugge said on October 4.

If Kenya succeeds in unlocking additional financing from the development finance institutions, it will be the latest in a series of augmentations to existing programmes which have seen the country tap into cheaper credit from the Bretton Woods institutions.

In May, Kenya tapped into a $1.0 billion (Sh148.8 billion) credit facility from the World Bank that was revised from the initial $750.0 million (Sh111.6 billion) owing to the country’s requirements around budget support.

The fifth review of Kenya’s programme with the IMF in July saw the current programme augmented with an additional $551.4 million (Sh82.0 billion) through the fund’s Resilience and Sustainability Facility.

In its latest forecast, the IMF has downgraded Kenya’s economic growth projection for 2023 from the 5.3 percent projected in April to 5.0 percent.

The fund has also downgraded Kenya’s 2024 growth projection marginally from 5.4 percent in April to 5.3 percent. This comes at a time global investors are seeking more than 18 percent return to invest in Kenya’s Eurobond, signalling increased perceptions of a sovereign default.

The yields on Kenya’s 10-year Eurobond maturing June 2024 are hovering between 18.4 and 18.7 percent this month, data published by the Central Bank of Kenya shows, reflecting the rising risk investors are placing on Kenya’s short-term debt.

Kenya has repeatedly reassured investors that it will refinance the debut 10-year Eurobond, ruling out the possibility of a sovereign default.

President William Ruto’s recent speech during the United Nations General Assembly calling for debt restructuring for developing countries has raised fears among investors over Kenya’s ability to refinance its fast-maturing external repayments.

The President did not refer to Kenya but said 10 low-income countries were in debt distress and 52 others were at high and moderate risk of falling into distress.

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