This is after the International Monetary Fund (IMF) revealed that the country plans to borrow an additional Sh1.3 trillion that includes at least two Eurobonds from the international financial markets in the next 18 months.
According to the National Treasury’s borrowing plan contained in its submissions to the IMF, Sh528 billion ($4.8 billion) of government external borrowing will be concessional compared to Sh253 billion ($2.3 billion) in commercial borrowing (Eurobond issuance) for project financing.
In total, the Eurobonds alone will net the country a total of Sh781 billion.
IMF notes that the borrowing plan under the programme allows for another Sh550 billion ($5 billion) Eurobond issuance to be used exclusively for debt management operations, which could include a refinancing of the 2024 Eurobond and retiring of relatively expensive syndicated loans.
“Given Kenya’s financing needs, the domestic market is projected to be an important source of public financing, particularly during the early phase of the programme,” the document notes.
This now explains the current push to increase the debt ceiling beyond the Sh9 trillion limit.
By the end of 2020, multilateral creditors accounted for about 40 per cent of external debt in Kenya, while debt from bilateral creditors represented close to 33 per cent.
Loans from China
Of Kenya’s bilateral debt, about 63 per cent is owed to non-Paris Club members, mainly loans from China to finance construction of the standard gauge railway (SGR) project.
IMF says the Kenyan government has shifted its financing strategy to prioritise concessional financing, and with the recovery of market access in recent months, the authorities plan commercial borrowing — in limited amounts — to safeguard external debt sustainability.
“While Kenya is at high risk of debt distress and subject to zero limits on non-concessional borrowing, the authorities have requested, and staff supports, non-zero limit exceptions for project financing and debt management operations,” the IMF says in the report.
In this context, commercial borrowing will be used to finance projects that are critical for Kenya’s development strategy and have high economic and social returns and for which concessional financing is not available and to proceed with liability management operations. This approach is consistent with the Fund’s Debt Limit Policy.
Treasury said last month that Kenya would use proceeds from a fresh Eurobond to retire expensive loans and refinance the old Eurobonds, if it fails to secure cheaper concessional loans.
“With regards to the Eurobond, we have plans to access the international financial market for two reasons. One is to refinance some of the expensive debt,” said Dr Haron Sirima, the director-general, Public Debt Management Office at the National Treasury.
He said the second reason why the government is contemplating accessing the international financial markets was in the event it does not get cheaper credit elsewhere, the Treasury will have to go for another Eurobond to repay previous Eurobonds.