The Treasury faces a headache raising Sh280 billion from external lenders in the current fiscal year for budget deficit financing after interest rates on the country’s sovereign debt rose to new highs of nearly 17 percent.
Yields on Kenya’s outstanding Eurobonds that are trading on the London and Irish stock exchanges have risen by an average of 4.4 percentage points since the end of May, forcing the government to rethink plans to float a new sovereign bond for the fiscal year that ended on June 30.
The state is also expecting to hit the international debt market to raise up to Sh280 billion for external lenders towards financing the Sh862 billion budget deficit in the current fiscal year which began last Friday.
It has however hinted at difficulties in accessing affordable loans outside of the concessional financing coming from the World Bank and the IMF.
The Treasury said that it is now considering taking up syndicated loans in place of Eurobonds, but is yet to get an indication of the appetite of international lenders who are likely to be looking for guidance from prevailing sovereign yields when pricing their offers.
“We are still engaging banks, we just floated and are yet to get feedback from them, so no timelines,” Treasury CS Ukur Yatani told the Business Daily on Monday.
The prevailing Eurobond yields in the secondary market are also much higher than the interest rates set when the bonds were issued, and are an indication of the pricing the country will get if it returns to the global debt market.
The highest yield is on the 10-year bond maturing in June 2024 at 16.99 percent, while the 13-year paper maturing in 2034 is the lowest at 12.74 percent. The two papers were trading at a yield of 10.4 percent and 9.7 percent respectively at the end of May.
The rise of the yield —which goes up as the price investors are willing to pay for a paper falls— comes as major central banks, including the Federal Reserve of the US continue to raise interest rates significantly to dampen inflation.
Investors typically demand higher returns lending to emerging and frontier countries such as Kenya, which are seen as relatively high-risk compared to obligations of the US and European governments.
