Kenya Weighs $2.5 Billion Eurobond Issue
By CultureBanx Team
Kenya could pay a higher risk premium for the $2.5B Eurobond
African countries with IMF-funded programs usually benefit from discounted yields on their Eurobonds
Debt, debt and more debt has continued to cripple Kenya’s economy even with the International Monetary Fund (IMF) urging the country to improve its revenue collection mechanisms and effectively limit borrowing. The IMF has made $1.5 billion available for Kenya to draw from in the event they experience balance-of-payments shock and the country’s central bank is considering taking the money.
Why This Matters: Kenya’s Central Bank Governor Patrick Njoroge had originally stated the country was not desperate to renew a $1.5 billion IMF loan, even as the government struggles to raise money to meet its maturing debt obligations. Right now Kenya’s average loan grace period has dropped from 10 years to an average of four years, exposing the country to a vicious debt cycle. The IMF wants the country to consider long term debt instruments to effectively space out repayments. Its first external debt to mature this year will be the $800 million syndicated loan that Kenya obtained from Standard Chartered, Standard Bank, Citi and Rand Merchant Bank back in March 2017.
The country’s history with taking on these types of debt bonds is long and a bit complex. Kenya’s total debt has been growing at a faster rate in the past six years, moving from $16 billion in June 2012 to currently $50 billion, this according to CBK data. The country will soon start repaying a $2.8 billion debt Eurobond it received in June 2014 to retire a $600 million syndicated loan taken in 2012.
Situational Awareness: African countries with current IMF-funded programs usually benefit from discounted yields on their Eurobonds, because foreign lenders tend to view such programs as a vote of confidence in these economies. Kenya has some of the lowest tax to GDP ratios in the world an intensified revenue collection scheme and IMF funding they may submerge into further cycles of debt.
CBx Vibe:“Worried” Clyde Kelly