The World Bank is wary about the ability of Kenya and other sub-Saharan to refinance their multi-billion Eurobonds in the coming months following the difficulties facing the global debt markets that have triggered a new wave of expensive loans.
In its update of sub-Saharan Africa’s economic outlook for 2023, the multi-lateral lender has noted a rise in the bond’s refinancing risk from increased interest rates, which have resulted in the narrowing of countries with market access for refinancing.
“The sell-off of developing countries’ Eurobonds and increasing investor fears about global outlook amplify the risks for sub-Saharan African countries facing large Eurobond redemptions,” said the World Bank in a report on Wednesday.
Kenya is preparing to retire the Sh264 billion ($2 billion) debut Eurobond whose maturity comes up in June next year.
Other countries facing sizeable Eurobond redemptions include Angola which has a redemption estimated at Sh226.5 billion ($1.7 billion) in 2025.
Despite the recent trend, which saw yields on Kenyan Eurobonds tumble, interest rates on the securities have held up at double-digit rates with the return on the 10-year Eurobond maturing next year for instance standing at 13.7 percent as of March 30.
In contrast, the Eurobond, which was the first for Kenya was issued in 2014 at a coupon rate of 6.875, leaving behind current yields at nearly twice the level at issuance.
In February, the National Treasury through the 2023 Budget Policy Statement lamented market pressures, which had resulted from the Russia-Ukraine war and tighter monetary policy in the US and Europe that have led to Kenya’s limited access to the international market.
“Limited access coupled with the illiquid international market may hinder the government’s plan to refinance the 2024 sovereign bond maturities,” the exchequer stated.
Last month, the National Treasury indicated it would tap concessional external loans to fund the bullet payment.
Additionally, the exchequer has been exploring methods to manage future maturities including the establishment of a Sinking Fund.
At the time of issuance, the international debt market had been awash with capital looking for a home in African economies.
With limited access to international capital markets, Kenya like its peers has turned to funding from multilateral lenders including the World Bank and the International Monetary Fund (IMF) to meet its financing needs.
The country is, for instance, near the tail end of a 38-month IMF programme that is expected to provide a total of Sh309.4 billion ($2.34 billion) in financial support by the end of June next year.
So far, the IMF has disbursed Sh219 billion ($1.656 billion) under the programme, which covers disbursements through the Extended Fund Facility and the Extended Credit Facility.
Peers such as Benin, Uganda, Ghana and Rwanda are also currently under IMF-funded programmes to meet their gross financing needs.
The World Bank is expected to provide a further Sh132.3 billion ($1 billion) to Kenya through its Development Policy Operations, boosting funding to the exchequer.
The Washington DC headquartered institution has pushed for countries in debt distress to pursue debt relief through the proposed G-20 Common Framework, which proposes the review of repayment terms on an equal footing between creditors as the best option for debt-distressed countries.
“The G-20 Common Framework for Debt Treatments is the closest framework for debt resolution available to redress sovereign debt crises.
“International financial institutions like the World Bank support this framework but point out that more can be done to strengthen the Common Framework,” the World Bank added.
The World Bank has retained its growth projection for Kenya at five percent for 2023 from its last outlook last November as it expects recent interest rate spikes to choke private consumption.
Gross domestic product growth is meanwhile estimated at a higher 5.2 and 5.3 percent respectively.
