Kenya made a total of Sh22.5 billion in interest payments on the five-year Sh76.4 billion ($750 million) Eurobond tranche that matured Monday, indicating the steep cost that taxpayers have to shoulder to finance external commercial loans.
The Treasury borrowed $2.75 billion in the debut Eurobond in 2014 in tranches of five years ($750 million/Sh75 billion) and 10-years ($2 billion/Sh200 billion).
The five-year paper was signed at a fixed interest rate of 5.875 percent, which was the cheapest rate among the different tranches on the country’s three Eurobond loans.
The interest payments worked out at Sh4.5 billion per year, payable in two equal bi-annual instalments of Sh2.25 billion, the last of which was paid alongside the principal amount.
The Central Bank of Kenya (CBK), which is the government’s fiscal agent, said in its market bulletin for last week that official forex reserves had dropped by Sh94.8 billion ($930 million), indicating the principal payment had been accounted for as well as interest payments on the 2014 loans.
Foreign debt payments are usually made from the CBK’s foreign exchange reserves.
CBK exchanges dollars for shillings for the Treasury when the government borrows foreign-denominated loans such as the Eurobond.
“The CBK usable foreign exchange reserves remained adequate at $9.153 billion (5.8 months of import cover) as at June 20,” said CBK in the bulletin.
CBK had already indicated that it was expecting to make the Eurobond payment. The Treasury had also planned for the rollover of the debt from the proceeds of the Sh210 billion ($2.1 billion) it raised in the third Eurobond issued in May.
The payments made this month also included Sh7 billion ($68.8 million) in interest on the 10-year 2014 paper, whose payment dates coincided with those of the five-year paper, having been issued jointly. The bond carries a coupon of 6.785 percent.
In total, Kenya’s outstanding Eurobond debt now stands at $6.1 billion (Sh621.6 billion) following the principal payment of the five-year loan.
These include the 10-year and 30-year loans issued in February 2018, for $1 billion each, and the seven-year ($900 million) and 12-year ($1.2 billion) loans taken last month.
Annual interest payments on the outstanding debt will continue to gobble up Sh46 billion ($451.5 million) every year until at least 2024, when the 10-year, 2014 issue matures.
Rolling over of maturing debt with new issues, however, means that the country is unlikely to get much relief from this level of debt payments on Eurobonds in the foreseeable future.
The Eurobonds are also one among many types of expensive commercial loans that the country has procured in the past decade, with syndicated loans from banks also carrying nearly similar repayment terms to Eurobonds.
Kenya is also due to start servicing interest payments later this year on the Sh327 billion worth of loans procured from China in 2014 for the construction of the Standard Gauge Railway.
The country was pushed to non-concessional loans after rebasing the economy in 2014 and shifting to the lower middle-income segment, thus losing access to the cheaper loans available to poorer countries from multilateral lenders and western development institutions.