Bank of America issues assessment on Kenya’s debt situation
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Bank of America in its assessment report on Kenya’s debt situation advices on ways to avoid default
Bank of America in its assessment report on Kenya’s debt situation advices on ways to avoid default.
In an evaluation of Kenya’s debt condition published in August, Bank of America (BofA) said the Kenyan government must institute measures to avoid an impending loan default.
BofA provided four options for Kenya to avoid a default in its report, which included austerity measures that would necessitate budget cuts and increasing foreign exchange buffers.
The Bank of America outlined other options such as bond buybacks and syndicated loans.
“Kenya is unlikely to default in the upcoming 12-18 months due to access to external financing, but there are no further near-term positive catalysts,” BofA explained how the International Monetary Fund and World Bank had given Kenya temporary relief.
BofA predicts that Kenya would not have been able to make its loan repayment obligations due to declining foreign currency reserves if it weren’t for the loans provided to Kenya by the IMF and World Bank.
The two multilateral lenders loaned Kenya Ksh203 billion in June and July, strengthening foreign reserves and driving up the price of bonds that were launched, according to BofA.
On budget cuts, Ruto has already instituted austerity measures to reduce government spending which will subsequently lead to less borrowing. However, the impact of this is yet to be seen.
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In November 2022, the President vowed to cut the budget deficit by reducing non-essential spending on travelling, advertising and training for all ministries, agencies and other government-owned institutions.
Foreign exchange buffers according to BofA will be attained through external financing which will build gross forex reserves.
One of the ways to attain that will be to have the World Bank disburse a loan to Kenya in Q1 2024 rather than the planned Q2.
A partial buyback of Eurobond was one of President Ruto’s ways of managing the debt crisis.
Moody’s, a global rating agency based in New York, USA, had warned Kenya that the buyback of Eurobond before its maturity date in June 2024, would be classified as default.
BofA on the other hand, advocates Ruto’s plan of buying back the bonds prematurely.
On syndicated loans, Kenya in July last month secured a Ksh72 billion syndicated loan arranged by a consortium of five international lenders. BofA advises Kenya to continue looking for syndicate loans as a way to avoid default.
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