Global investors have demanded for the first time since May more than 18 percent return to invest in Kenya’s Eurobond which matures in nine months, signalling increased perceptions of a sovereign default.
The yields on Kenya’s 10-year Eurobond maturing June 2024 hovered between 18.4 and 18.7 percent last week, 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 a huge $2 billion (Sh301.51 billion as per budget books) 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.
“The global community must therefore develop a debt restructuring initiative that does not wait for nations to plunge over the cliff before providing relief,” Dr Ruto said.
The yield on the 10-year Eurobond which will be due for repayment in 2028 also ticked up to between 13.43 percent and 13.49 percent, the first time it crossed the 13 percent mark since early May when the government was still battling a cash crunch.
“Dollar bond spreads have risen in recent weeks in response to debt sustainability concerns. A crunch point looms in mid-2024 when a Eurobond repayment is due,” David Omojomolo, Africa economist for UK-based Capital Economics, wrote on Kenya last Friday.
Kenya is staring at record-high external repayment expenses in the current year ending June 2024, underlined the bullet Eurobond payment and estimated at Sh112.39 billion due to Chinese lenders, largely Exim Bank of China.
The Ruto administration is banking on the full enforcement of the tax hikes, including doubling value added tax on fuel to 16 percent and a 1.5 percent housing levy on monthly pay for workers, to narrow fiscal deficit from an estimated 5.8 percent of gross domestic product last financial year ended June to projected 5.4 percent for the current year.
“There’s a growing risk that recent protests lead to recently proposed austerity measures being watered down, leaving Kenya’s debt on an upward path,” Mr Omojomolo said.
The headache of servicing external debt has been heightened by aggressive interest rate hikes by central banks in rich countries in the battle against inflation amidst the sustained weakening of the shilling.
The Kenyan currency has, for example, shed about a fifth of its value against the US dollar in the past year.