Kenya’s Treasury will tap concessional external loans to fund the KSh259 billion ($2 billion) bullet repayment of its debut Eurobond due in the next financial year starting July 2024.
Kenya’s Treasury Principal Secretary Chris Kiptoo told the country’s members of parliament that the international sovereign bond of $2 billion (KSh259 billion) issued in 2014 will be falling due during the 2023/24 financial year.
Dr Kiptoo told Kenya’s National Assembly’s committee on Public Debt and Privatization that the country was expected to repay Eurobond debts of KSh254.16 billion ($1.96 billion) in 2024, KSh114.37 billion ($880 million) in 2027 and KSh127.08 billion ($978 million) in 2028.
Kiptoo told the committee chaired by Balambala MP Abdi Shurie that Kenya had paid $127.07 million (KSh16.5 billion) as of March 1, 2023.
“The National Treasury will implement liability management operations targeting the 2024 Eurobond maturity to smoothen the maturity structure of public debt over the medium term,” Kiptoo said.
He also said the Kenyan government would optimise concessional external funding sources, lengthen the maturity profile of public debt through the issuance of medium to long-dated bonds and deepen the domestic debt market to finance more budget deficits and cut reliance on external sources.
Jubilee regime’s uptake
The Kenyan Treasury is facing tough options ahead of the Eurobond repayment, which has been compounded by the high global interest rates and the country’s shrinking dollar reserves.
Kenya is expected to make the bullet payment to retire the 10-year sovereign bond whose issuance in 2014 signalled the country’s former Jubilee administration’s turn to commercial debt to fund the budget.
When the bond was floated, the international debt market was awash with capital looking for a home, which African economies were only too happy to provide at rates that would look like a bargain today.
Kenya took up $2.75 billion (Ksh355.5 billion at today’s rates) in two tranches — a 10-year paper and five-year issuance, at interest rates of 6.78 percent and 5.87 percent respectively. The five-year paper was repaid partly using the proceeds of another $2.1 billion (KSh272 billion) Eurobond issued in May 2019.
Rolling over the 10-year tranche is now proving much more complicated, due to high rate demands by lenders that scuppered plans to float a sovereign bond last year — yields in the secondary market rose to highs of 22 percent in July.
Kenya’s dollar reserves, from which external debt is repaid, are now at a near 10-year low of $6.9 billion, having fallen below the required four months of import cover three weeks ago.
Central Bank of Kenya foreign exchange reserves went down by Sh11.8 billion in 2015. PHOTO | FILE
In the Kenya’s 2023 Budget Policy Statement, the country’s treasury said market pressures due to the Russia-Ukraine war and monetary tightening in the US and Europe have limited its access to the international market, as well as bar the concessional funding the country is getting from the IMF and World Bank.
Refinancing risks
Dr Kiptoo told Kenyan MPs that the country’s treasury was taking several measures in addition to the continued implementation of fiscal consolidation to guide borrowings during the financial years 2023/24 to 2025/26.
“These include devising ways of managing maturities including the establishment of a Sinking Fund to manage debt maturities,” said Dr Kiptoo.
He said the treasury would use long-tenor treasury bonds for refinancing maturing domestic debt and raising new deficit funding sources along with a reduction in the proportion of short-term domestic debt (treasury bills).
“This will minimize refinancing risks and lengthen the Average Time Maturity for domestic and total debt,” he said.
Dr Kiptoo also said the treasury would maximize the use of concessional borrowings as opposed to commercial debt.
He added that the December 2022 Kenya’s Debt Sustainability Analysis showed that public debt stock remained sustainable but with a high risk of debt distress.
