Kenya plans to sell shilling-denominated bonds abroad to diversify the country’s investor base without elevating foreign currency risks, the National Treasury has said.
The announcement comes barely two months after Foreign Affairs Cabinet Secretary Musalia Mudavadi mooted a plan to issue a diaspora bond to facilitate the expansion of the Jomo Kenyatta International Airport (JKIA).
The shilling-denominated bonds aim to bolster domestic funding sources and manage public debt more effectively. According to the Treasury, this initiative aims to complement traditional financing methods, such as Treasury bills and bonds, by introducing new instruments that appeal to local investors.
As part of debt management, the National Treasury is considering the elimination of the one-year Treasury bills from the market. This move is part of a broader initiative to lessen reliance on short-term securities and to strengthen the effectiveness of monetary policy within the economy.
In its newly published 2025 Draft Medium Term Debt Strategy, the government outlines that an ideal debt plan would focus on reducing the amount of debt due within one year as a percentage of gross domestic product (GDP) while extending the maturity periods for both domestic and external debt.
This comes as almost a fifth of the country’s domestic debt will fall due within the first six months of this year, chiefly due to the bills, the National Treasury said in a debt-management strategy paper on its website.
“Overall, the repayment schedule is bunched for the next nine years due to large share of Treasury bills and near-term maturities of Treasury bonds, international sovereign bonds, and syndicated loans,” according to the report.
By the end of 2024, the government had met 49 per cent of its full-year domestic borrowing target, compared with only 16 per cent for external loans and grants, according to a separate gazette notice by Treasury Secretary John Mbadi.
What the government is eyeing with shilling-dominated bonds is the diversification of funding sources, thus reducing reliance on foreign loans and currency-denominated debt, thereby mitigating exchange rate risks.
While the government has outrightly set this as a target, issuing bonds under the Shilling can bolster the Shilling by attracting domestic capital inflows. A stronger shilling reduces the cost of servicing foreign-denominated debt and can lead to a more favourable exchange rate environment.
The Kenyan Shilling has remained steady against the dollar for nearly seven months now, maintaining an exchange rate of around Ksh129. On Monday, the shilling traded at Ksh129.57, according to data from the Central Bank of Kenya, this is despite the dollar losing ground before President Donald Trump's swearing-in.
This is not the first time the government is making an attempt to issue a shilling syndicated bond. The idea was first floated in February last year, before the chaotic fallout over the Finance Bill 2024, which resulted in the government halting most projects.
The proposal has faced differing opinions. Former CBK Governor Patrick Njoroge cautioned against such measures, arguing that they could inadvertently promote dollarization in the economy and may not effectively mobilise the intended funds from retail investors.
