Kenya does not intend to slow its appetite for borrowing despite increasing public pressure on the government to slow its appetite for debt. Nairobi plans to borrow an additional 7.1 billion dollars in Eurobonds.
The International Monetary Fund (IMF) has revealed that East Africa’s largest economy plans to borrow 1.3 trillion shillings, including at least two Eurobonds in international financial markets over the next 18 months.
According to the National Treasury’s borrowing plan contained in its submissions to the IMF, 528 billion shillings ($ 4.8 billion) of government external borrowing will be concessional against 253 billion shillings ($ 2.3 billion) d ” commercial loans (issuance of Eurobonds) for the financing of projects.
In total, Eurobonds alone will bring the country a total of 781 billion shillings (about $ 7.1 billion).
The IMF notes that the borrowing plan under the program allows for an additional Eurobond issue of 550 billion shillings ($ 5 billion) to be used exclusively for debt management operations, which could include a refinancing of the 2024 Eurobond and the withdrawal of relatively expensive syndicated loans.
“Given Kenya’s financing needs, the domestic market is expected to be an important source of public finance, especially during the initial phase of the program,” notes the IMF in its report.
At the end of 2020, multilateral creditors accounted for around 40% of Kenya’s external debt, while bilateral creditors’ debt represented almost 33%.
Of Kenya’s bilateral debt, about 63% is owed to non-Paris Club members, mainly loans from China to finance construction of the Standard Gauge Railway (SGR) project.
The IMF says the Kenyan government has changed its financing strategy to prioritize concessional financing and, with market access restored in recent months, the authorities are planning commercial borrowing – in limited quantities – to preserve viability of external debt.
“While Kenya is at high risk of debt distress and subject to zero limits on non-concessional borrowing, the authorities have requested, and staff support, non-zero limit exceptions for project finance and operations. debt management, ”says the IMF in the report.
In this context, the commercial loan will be used to finance projects critical to Kenya’s development strategy and with high economic and social returns and for which concessional financing is not available. This approach is consistent with the Fund’s leverage limit policy.
Last March, Kenya’s finance ministry said Kenya would use the proceeds from a new Eurobond to withdraw expensive loans and refinance old Eurobonds.
“Regarding the Eurobond, we plan to access the international financial market for two reasons. One is to refinance part of the onerous debt,” said Haron Sirima, director general of the Office of Financial Management. public debt to the national treasury.
He added that the second reason the government is considering accessing international financial markets was that, in the event that it does not get cheaper credit elsewhere, the Treasury will have to opt for another eurobond to repay the euro- previous obligations.
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