In a strategic move, Kenya’s National Treasury has enlisted the expertise of Citi and Standard Bank as joint lead managers. Their mission: to explore potential international US$ capital markets funding and liability management options for Kenya.
The Challenge Ahead: Tackling Eurobond Maturity
With the specter of an intense squeeze on foreign exchange reserves in 2024, Kenya faces the challenge of managing a $2 billion Eurobond maturity due next June. The repayment dance begins with a commitment to settle $300 million, providing a temporary reprieve.
Navigating Debt Distress and Shifting Dynamics
Kenya’s debt landscape has evolved into a case study, grappling with high debt distress, a depreciating currency, and rising yields. Total external debt has surged from $10.2 billion in 2013 to $34.8 billion in 2020, with non-concessional borrowing contributing significantly.
The Short-Term Solution: Concessional Borrowing and IMF Program
In response to the changing dynamics, Kenya shifted gears between 2020 and 2022, turning to concessional multilateral borrowing from the IMF, World Bank, and AfDB to weather the impact of the Covid-19 pandemic. The 38-month IMF program launched in April 2021 aims to strengthen fiscal and debt management, supported by a $2.34 billion funding envelope.
Cancelled Eurobond, Eroding Reserves, and Market Challenges
Kenya’s plan for a $982 million Eurobond in January 2022 was scrapped due to rising yields, rendering the new issue financially unviable. The aftermath saw a steady erosion of foreign exchange reserves, dwindling from $8.3 billion in January 2022 to $7.0 billion in November, raising concerns about import cover.
The Current Chess Moves: Seeking International Funding Options
Against this backdrop, the National Treasury is charting its course by seeking international funding options through the collaboration with Citi and Standard Bank. The move is crucial not only for settling imminent Eurobond commitments but also for navigating the complexities of global financial markets.
As Kenya strategizes to address its financial challenges, the coming weeks will unveil the unfolding chapters of this financial chess game. With Citi and Standard Bank as key players, Kenya aims to make calculated moves to secure its financial stability amidst a dynamic and challenging economic landscape.