Experts back Treasury’s plan to pay debt with Eurobond funds

Kenya’s total public debt hit nearly Sh4.59 trillion last November. file photo | nmg
Kenya’s total public debt hit nearly Sh4.59 trillion last November. file photo | nmg 

Economists have backed the Treasury’s plan to spend proceeds from the proposed second Eurobond on refinancing fast-maturing debt saying the move will ease pressure on domestic revenue.

Kenya plans to tap foreign markets as early as this quarter ahead of the maturity of the $500 million (Sh51.18 billion) five-year Eurobond tranche next year.

Standard Chartered Bank chief economist for Africa Razia Khan said although the country remains in the “comfortable” zone in its debt service commitments, it may need to borrow again as the maturity date for the external debt fast approaches.

The sensible thing for most African countries is that ahead of that maturity, (they) issue again to refinance (pay off maturing loan with a new one),” Ms Khan said. “Borrow in the external markets and with proceeds of that borrowing, pay down the debt.”

Total public debt hit nearly Sh4.59 trillion last November, Central Bank of Kenya data showed last week, with the bulk of the loans accumulated last year being short term.

External debt hit Sh2.36 trillion, Sh140 billion shy of the Sh2.5 trillion limit passed by the National Assembly in December 2014, making up 51.4 per cent of the total debt.

Accumulation of short-term expensive loans saw the Treasury last October successfully negotiate for a delay in repayment of $750 million (Sh76.77 billion) syndicated loan to April.

The issue of another Eurobond, whose size is yet to be disclosed, is expected by March. Stanbic Bank economist for East Africa Jubran Qureishi said the tenure of the planned second Eurobond should also be extended to 15 years to allow ample time for the Treasury to spread out payments.

About Sh658.2 billion, or 45 per cent of projected tax revenue, has been budgeted for payment of loans in the current financial year which ends in June, the Treasury data shows.

Countries which have instituted budget cut reforms and have higher sustainable growth prospects stand a better chance of accessing funds at cheaper rates, Ms Khan said.

Credit quality of individual borrowing countries has become quite important for international investors, the London-based economist said, a break from the past when they used to view Africa more or less as a unit.