Kenya recently secured $1.5 billion (approximately Sh194 billion) through a Eurobond sale. This move reflects the government’s commitment to manage debt and supporting the national budget. Below is a breakdown of this development and its impact.
Details of the Eurobond Sale
The new Eurobond will mature in March 2036 and carries an interest rate of 9.5%. Investors offered $4.9 billion (Sh633.6 billion) in total, but the government accepted only $1.5 billion. This decision highlights Kenya’s cautious borrowing strategy, focusing on current financial needs rather than excessive debt.
How the Funds Will Be Used
The government plans to allocate $900 million (Sh116.4 billion) to refinance a Eurobond issued in 2019. That bond carried a 7% interest rate and was due for repayment between May 2025 and May 2027. By buying it back, Kenya will reduce short-term repayment pressures.
The remaining $600 million (Sh77.6 billion) will support the national budget. These funds will help finance essential development projects and public services, ensuring that the government meets its external borrowing target of Sh280 billion for the 2024/2025 fiscal year.
Investor Confidence in Kenya
The oversubscription of the Eurobond indicates high investor confidence in Kenya’s economic stability. Investors offered significantly more than the government accepted, showing faith in the country’s financial outlook.
President William Ruto emphasized this point by stating, “We received $6.2 billion in offers but chose only $1.5 billion.” This prudent approach demonstrates Kenya’s commitment to sustainable borrowing.
Read: Kenya’s Strategic $900 Million Eurobond Buyback
Previous Debt Management Strategies
This is not the first time Kenya has used Eurobonds to manage debt. In February 2024, the government bought back $1.48 billion of the $2 billion Eurobond issued in 2014. That buyback, financed through a $1.5 billion seven-year bond, aimed to smooth Kenya’s debt repayment schedule.
The current issuance follows the same strategy, focusing on reducing debt risks while maintaining fiscal stability.
Benefits of the New Eurobond
- Smoother Debt Payments: The funds will help Kenya manage its debt maturity profile by spreading out repayment obligations.
- Budgetary Support: The additional funds will support development projects, infrastructure, and public services.
- Stronger Investor Relations: The high demand for Kenya’s Eurobond strengthens its credibility in international financial markets.
Concerns Over Debt Levels
Despite these positive outcomes, Kenya’s rising debt remains a concern. In August 2024, S&P downgraded Kenya’s credit rating from “B” to “B-” due to fiscal challenges. The agency noted that repealing parts of the Finance Bill weakened the country’s revenue outlook.
In response, the government has sought alternative financing sources. For example, it is negotiating a $1.5 billion loan from the UAE at an interest rate of 8.25%. This diversification helps reduce reliance on Eurobonds while securing favorable borrowing terms.
Future Outlook
Kenya’s proactive debt management strategy shows its commitment to maintaining fiscal stability. However, balancing borrowing with sustainable policies is critical.
The government is also working with international organizations like the IMF to secure further support. These efforts aim to ensure that Kenya can meet its financial obligations while funding essential development projects.
