Kenya is now awaiting a series of loans from the International Monetary Fund (IMF), World Bank and Trade Development Bank (TDB) to execute a Eurobond buyback plan, which had earlier been planned for December.
A National Treasury insider privy to the negotiations told the Star in confidence that there are several loans on the way that will see the country execute the buyback plan before March.
"There are several decisions to be reached this January that will give a clear direction to the Eurobond settlement. IMF board is expected to decide on the approval of the $938 million agreement reached in November end of January"
The Federal Bank in the US is also expected to decide on the base-lending rate. These are key decisions to our plan," the Treasury official told the Star.
He added that the decision as to when to access the market will be guided by the government-appointed joint lead managers and legal counsels based on the market conditions.
His sentiments reflects that of National Treasury Cabinet Secretary Njuguna Ndung'u who indicated that 'substantial’ external inflows from the World Bank, IMF, and other development finance institutions, in addition to key bilateral partners, are anticipated between January and March 2024.
In November, the IMF reached an agreement on a $938 million loan for Kenya. Upon approval by the lender's board this month, $638 million will be immediately released.
The country is also waiting on a $500 million facility from TDB. Kenya largely relied on this amount to execute the buyback but was delayed.
Last week, the Business Daily reported that the exchequer is considering issuing Japanese and Chinese bonds to settle the buyback, adding to a list of funding options.
"The government will also explore other alternative sources of financing including climate change financing options, Debt for Nature Swaps, Samurai and Panda bonds if the market and macroeconomic environment allow",'' the exchequer says in the latest Budget Policy Statement.
The exchequer did not give more information on the same. The settlement of the inaugural Eurobond taken in 2014 has been the biggest debt headache for President William Ruto's government, especially after regional peers like Ghana and recently, Ethiopia defaulted on their sovereign bonds.
His remarks that the country will execute a buyback plan in December rallied the market, with yields on international bonds halving after almost a year of appreciation.
On Friday, the international market, yields on Kenya’s Eurobonds declined by an average of 1.08, with the interest rate on the inaugural Eurobond hitting a 15-month low of 13 per cent from a high of almost 21 per cent a month ago.
Speaking during the State of Nation address in November, Ruto said that his government would pay $300 million of the $2 billion in December to ease pressure on the tough financial market that has seen the shilling drop heavily against major international currencies.
"I can now confirm ... with confidence that we will and we shall pay the debt that has become a source of much concern to citizens and markets," Ruto told the Parliament.
The Google currency tracker mapped the shilling at 157 units against the greenback on Sunday, an all-time low. The currency has dropped by 22 percent in a year.
Finance and economics experts worry that the local currency is likely to drop further due to the country's failure to execute the December buyback plan.
The East African nation is being watched closely to see how it handles the bond due to its growing debt repayments, weakening currency and a surge in yields that has effectively locked out many frontier economies from markets.
"All eyes are on Kenya, especially after a recent default by Ethiopia. Even so, Kenya is not badly off and all indications are that the country will redeem the Eurobond before the due date," Economic analyst Daniel Mbaabu told the Star.
He adds that it was wise to postpone the buyback to wait the Fed meeting later this month. All indications are that the US government will revise downwards the Federal rate, a much-needed relief for Kenya's weakening shilling.
Patrick Mugo agrees that Kenya is in a much better place and is confident that a default is unlikely.
"Although we have accumulated a high debt that is almost consuming 70 percent of the budget, the repayment plan is feasible. Let Ethiopia and Co deal with their agonies," he said.
Despite the faster-than-expected growth in the country’s debt stock, the exchequer says the government remains committed to fiscal consolidation, which it expects to achieve largely from enhanced revenue mobilisation.
The National Assembly in September amended the Public Finance Management Act of 2012, revising Kenya’s debt ceiling from a cap of Sh10 trillion to a moving target/placeholder of no more than 55 percent of GDP and present value terms.
The debt levels continue to grow, with the exchequer acknowledging that Kenya’s headroom for more public borrowing is narrowing, putting pressure on the taxman to raise funds for servicing public debt. As of September 31, 2023, Gross Public Debt increased by Sh310 billion to Sh10.58 trillion compared to Sh10.27 trillion at the end of June 2023.
Apart from external debt, Kenya's government securities have closed 2023 at a historic high, putting the country in a tough position as it seeks to ramp up borrowing to fund a budget deficit.
The Central Bank of Kenya (CBK) said in its data released Friday evening that yields on Treasury bills had closed the year at a record of 16 per cent, the highest ever, as those on Treasury bonds stand at 16.8 per cent, with both yields having nearly doubled during the year.
Even so, Ndung'u insists that the government has developed a comprehensive plan for debt service payments to ensure it doesn't default to repay both domestic and foreign debt, combining higher revenue collection and concession financing.