Treasury reveals plan to settle Sh298bn Eurobond


The World Bank Regional Vice President Ms Victoria Kwakwa, the World Bank Managing Director, Ms Anna Bjerde and the National Treasury and Economic Planning Cabinet Secretary after a Bilateral Meeting where the CS requested for enhanced allocation for Kenya during the International Development Association (IDA) 20 cycle. PHOTO | POOL

The government now says that plans to issue fresh debt in the international capital markets to aid in settlement of the $2 billion (about Sh298 billion) Eurobond maturing in June will only be complementary to tapping into concessional financing from multilateral institutions such as World Bank and the IMF.

Speaking on the sidelines of the World Bank and IMF meetings in Marrakech, Morocco, Treasury Cabinet Secretary Njuguna Ndung’u told a group of investors from Japanese multinational, Sumimoto Mitsui Banking Corporation that use of cheaper financing from World Bank and IMF was being pursued as the primary pillar for addressing the Sh298 billion liability, which matures seven months from now.

“There’s the Eurobond 2024, which is maturing and is causing market jitters. Our strategy is simple. We're trying to align resources from multilateral development banks, that’s IMF and the World Bank, the bilaterals like friendly countries which we have been working with like Japan and others; and then development finance institutions to reduce our exposure with the Eurobond, then we can contain the market jitters.

"Once we do that, the next thing is that any bonds or any instruments we use in the market should be complementing the resources that we have. We want to make sure that whatever we do we actually enhance our capability to deal with the development agenda,” Prof Ndung’u told the investors.

This comes three days after the IMF indicated that it will kick off a mission visit to Kenya this week with discussions for additional financing amongst the agenda items to be explored with the government.

“Kenya is one of the economies that has been trying to do all the right things. We are very encouraged to see policies remaining in the right direction, particularly fiscal policy, with the primary balance moving to a level that will stabilise debt. We have shown in the past that for countries that continue to implement policies as envisaged, that are moving policy in the right direction, we do what we can to provide them with the financing they need,” IMF’s Director for Africa, Abebe Selassie, told journalists in Morocco on October 13.

Prof Ndung’u said that the prevailing global market remained prohibitive for debt issuance with the yield on Kenya’s Eurobond trending in the high teens as major central banks globally keep their benchmark rates high in a bid to fight inflation pressures.

“Right now, our yield is double digit. The market was expecting that we could go (into the market) to refinance. How do you move from double digits to a single digit? And even if you move to a single digit, you do not want to repeat the past mistakes? That is why we have argued that you want to come up with solutions that solve the current liquidity crisis which is at the domestic level, the international markets are jittery just because what we have seen is tightening monetary policy, raised interest rates and depreciated currencies in the south,” Prof Ndung’u said.

The Treasury now indicates that the fiscal deficit for the current financial year will be at least Sh196.0 billion larger than earlier projected owing to the impact of the weakening shilling on the 2023/24 borrowing plan.

The Draft Budget Review and Outlook Paper made public on September 15, proposed to revise external financing for the financial year 2023/24 to Sh310.8 billion, up from the Sh131.5 billion that was proposed in the June budget speech, while domestic financing was now set at Sh415.0 billion compared to Sh587.0 billion in June.

The earlier planned deficit of 4.4 percent of gross domestic product (GDP) will now stand at 5.6 percent on account of the sliding currency.

“In a sense, it (currency depreciation) has amplified the debt structure. For us for example we are telling the World Bank that our fiscal deficit, or fiscal gap, has moved from 4.4 percent to 5.6 percent. That 1.2 percent is actually due to appreciation of the currencies where the denomination of debt is mostly the US dollar,” Prof Ndung’u told the investors.

According to data from the Central Bank of Kenya (CBK), the Shilling has lost 20.9 percent of its value against the US dollar since the start of 2023.

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