Government To Take Fourth Eurobond To Settle Debt

  • a
    President Uhuru Kenyatta (right) with Treasury CS Ukur Yatani (left) at a past state function
  • Kenya is set to take a fourth Eurobond to help settle part of its debt obligations estimated at Ksh925 billion ($8.48 billion) within the next three months.

    Haron Sirma, the Director-in-charge of Debt Management at the National Treasury, did not disclose the amount that the country will borrow through the Eurobond.

    According to Sirma, the amount will only be determined once parliament considers and approves the supplementary budget for fiscal year 2020/ 2021.

    “You know we are going through the supplementary budget now, so may be it is when parliament has considered and approved the supplementary budget that is when we shall start the process (issuing a Eurobond bond),” he said.

    Treasury CS Ukur Yattani (right) with a representative of the Japanese government pose for a photo after agreeing on a loan deal at the Treasury Buildings on February 27, 2020.
    Treasury CS Ukur Yatani (right) with a representative of the Japanese government pose for a photo after agreeing on a loan deal at the Treasury Buildings on February 27, 2020.

    Three global rating agencies namely; S&P, Fitch and Moody’s Investor Service, have linked the fast accumulation to deficit in revenue collection and staggering economy that has raised fears of the possibility of a debt distress.

    Recently, S&P downgraded the Country’s credit rating to ‘B’ from ‘B+’ citing the significant risks to the government’s fiscal consolidation plan.

    However, Sirma explained more and possible causes of the country’s credit downgrade.

    “All sovereign ratings have been downgraded on account of this Covid-19 pandemic, and countries still access the international financial markets. A downgrade does not mean that your access to the market has been limited,” said Haron Sirma

    Investors willing to buy the Kenyan bond might be forced to demand risk premium to cushion against Kenya’s risk of default. spoke to an economist, Anderson Mwenda, to clarify on the effect of this huge debt crisis on the citizens and the economy of Kenya.

    ''There is a possibility of the government raising taxes and/or imposing new taxes/levies in order to raise more revenue to pay loan interest. Increase in taxes lowers aggregate demand.

    ''Secondly, foreign investors will shy away from investing in Kenya due to high taxes/levies/permit fees. They will opt to invest in countries where they can get tax holidays.

     ''Thirdly, the government is heading into a debt distress. The ratio of debt-to-GDP is 70% plus or thereabouts. An increase of the ratio increases the chance if Kenya defaulting on its debt and this will have an advance effect on economic growth,'' noted Mwenda.

    In this fiscal year 2020/2021, debt will account for approximately 69 per cent of GDP as it is forecasted to reach Ksh7.8 trillion ($71.55 billion).

    During this period, interest payment on domestic debt as a share of tax revenue increased from about 14 percent to 23 per cent while interest on external debt increased from two per cent to nine per cent.

    In May 2019, Kenya raised $2.1 billion from international capital markets to pay off other loans including a $750 million Eurobond that matured in June 24, 2019 and other debt obligations.

    The government’s first Ksh280 Eurobond loan was taken in 2014. Four years later, the government went for another Eurobond loan amounting to Ksh202 billion.

    Treasury CS Ukur Yatani (right) poses for a photo at Treasury Headquarters, Nairobi on Thursday, June 11, 2020, ahead of Budget 2020/21 presentation