Kenya signals shift back to foreign debt as government eyes $2.27 billion Eurobond

Kenya will raise more money from foreign than domestic sources, as it restructures its debt portfolio to take advantage of growing appetite for high-yielding debt.

The National Treasury said it is seeking to raise $1.13 billion in sovereign bonds in the next four months and an additional $1.14 billion during the financial year starting July to finance the country’s budget.

The government is moving away from high-interest domestic borrowing to maximize concessional and semi-concessional external debt, Treasury said in its medium-term debt management document submitted to Parliament on February 11. Commercial foreign loans will be limited to financing projects with high financial and economic returns.

The National Treasury is targeting a foreign-to-domestic net borrowing ratio of 57:43 in the plan covering 2021-24, compared with 21:79 in the past financial year. The government has previously said it wants to limit its external debt exposure to mainly concessional loans.

“It is a good time to issue a Eurobond, as there is certainly appetite for higher-yielding debt,” said Yvonne Mhango, head of sub-Saharan economic research at Renaissance Capital. “Given the stretched fiscal finances, concessional loans would be a more affordable and sustainable source of financing.

“Either way, the proceeds of the foreign loan will help the authorities shore up foreign exchange reserves and support the shilling.”

Treasury is also expecting $753.4 million in World Bank budget support this financial year and $678.5 million in the next financial year. It received $1 billion in the last financial year.

Moreover, Kenya expects to receive $719.6 million in the current period and $496.8 million in 2021-22 from the International Monetary Fund (IMF)’s rapid credit facility.

Plans to add to already piling debt are expected to be met by huge uproar from a citizenry that has lamented high levels of corruption and waste of resources on projects that have proven financially unviable.

Kenya’s public debt stood at $66.5 billion by the end of December, equivalent to 65.6% of gross domestic product (GDP) in nominal terms, according to the government data.

The National Treasury wants the statutory debt ceiling lifted to above $82.2 billion to accommodate anticipated fiscal deficits from 2021-22, according to the document.

A target to narrow its fiscal deficit to 3.5% of GDP has eluded Treasury, which now expects to hit that goal by 2024-25, according to the document. This year, the nation estimates a deficit at 8.9% of GDP.

Kenya’s economy is expected to grow by 7.0% this year as it recovers from the coronavirus crisis, the document added, raising the forecast from an initial 6.4%.

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