Debt headache as Treasury seeks solace in new Eurobond
3 min read
Treasury seeks solace in new Eurobond as debt trap crisis deepens in the handling of the large maturing loan
Treasury seeks solace in new Eurobond as debt trap crisis deepens in the handling of the large maturing loan.
In order to handle the maturity of a Ksh270 billion ($2 billion) 10-year bond next year, Kenya plans to issue a new Eurobond, exposing a growing debt trap as the government keeps putting the problem off.
The Treasury chose another Eurobond, once again delaying the chance to address the deteriorating debt situation, in light of the stark reality of managing the sizable maturing loan amid highly ballooned debt-servicing costs in recent years and the country’s highly weakened local currency against the US dollar.
“The government of the Republic of Kenya, through the National Treasury, is considering accessing the international capital markets before the end of the fiscal year 2023/24 (July 1, 2023, to June 30, 2024) to issue a sovereign bond,” the Treasury said in a tender call for lead arrangers to express interest in the new Eurobond plans.
This comes when the government is about to conclude a deal to raise a slashed $500 million (Sh67.44 billion) from a syndicate of banks over the next few weeks, down from the $600 million (Sh80.99 billion) initially targeted, as part of the planned $900 million (Sh121.49 billion) commercial borrowing for the current financial year.
Sources revealed that Kenya settled on a dual currency option for the debt to ease the pressure of the US dollar on its economy.
Kenya’s debt crisis has seen the government delay salaries of public servants, with nearly seven out of every 10 shillings collected in tax revenue going towards servicing debt.
The country’s total debt hit Sh9.182 trillion in January and is projected to reach Sh9.41 trillion by June, just Sh590 billion shy of the Sh10 trillion debt ceiling.
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The Treasury will also spend Sh1.36 trillion to service debt in the current financial year, which is 63 percent of the tax revenue targeted for collection by the Kenya Revenue Authority (KRA) by June.
The issuance of the Eurobond comes during Ruto’s first Budget of Sh3.663 trillion in 2023/24, which has a financing deficit of Sh720.1 billion.
This deficit will be plugged through a mix of Sh198.6 billion in net external financing and net domestic borrowing of Sh521.5 billion.
This means Kenya’s total public debt, excluding the planned Eurobond, is poised to hit a record Sh10.13 trillion by June 2024.
The Treasury has not disclosed the sum of the new Eurobond, but should it be an estimated Sh270 billion, this would see public debt jump further to Sh10.4 trillion.
A Treasury analysis shows that under Kenya’s fiscal consolidation programme, it will take at least four years (2023-26) to revert the present value of public debt to the sustainability threshold of 55 percent of the GDP.
The public debt stood at 60 percent of the GDP at the end of last year, the Treasury said, citing a debt sustainability analysis prepared by the International Monetary Fund and the World Bank.
The proceeds from the latest Eurobond will be used to refinance the Sh270 billion Eurobond, which was Kenya’s first-ever, that the country is expected to pay in June next year.
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