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Kenya

Treasury plans a $1 billion plus Eurobond after a tough debt-restructuring

Banking on the country's diversified economy and its IMF deal, finance officials are going back to the markets

Treasury officials are basing their plans for debt-restructuring and another Eurobond issue on a rapid bounce back from the pandemic's hit on tourism and commodity exports – several bank analysts predict over 4% growth this year with the government forecasting 5.8%.

This plan comes as the budget deficit is predicted to widen to 8.7% of GDP this year. Financing this deficit will almost certainly require the government to borrow more locally and on the international markets.

Government debt is expected to exceed 66% of GDP over the next three years with debt-service taking as much up to 27% of state revenue in the same period.

The Standard & Poor's rating agency has kept its outlook at 'stable' for Kenya this week in the basis that country's diversified economy would start recovering and would be bolstered by credits from the International Monetary Fund and the World Bank.

Like other ratings agencies, S&P have said it may downgrade Kenya if it enters into a formal debt-restructuring programme under the G-20's Debt Service Suspension Initiative (DSSI).

This week, Haron Sirima, director of the Debt Management Office at the Treasury in Nairobi, told reporters that the government would not join the G-20 scheme.

Officials have confirmed that the Treasury will raise at least 124 billion shillings (US$1.24bn) by June 2022 on the Eurobond market. Treasury officials say that the move is part of a planned debt restructuring of around KSh350bn ($3.5bn) of principal repayments.

The size of the Eurobond will depend on how much cash the government can raise from the World Bank, IMF and African Development Bank. That is likely to be composed of KSh262bn from the IMF's extended credit facility and a loan of around KSh70bn from the World Bank.

The government is also reported to have secured the deferment of some $600 million in service payments on public and private debt until the end of June. So far, the ratings agencies have not yet responded.

Yet with the government having just taken control of the Standard Gauge Railway project and in the process of writing off more Kenya Airways loans as it effectively nationalises the airline, the government's debt burden and contingent liabilities, via state companies, is set to rise over the next three years.

The government's Eurobonds from 2014 and 2018, from which it raised a combined KSh410bn, started maturing last year.

Local analysts say that the government's forecast of a KSh931bn budget deficit now looks extremely optimistic and that hefty tax rises look likely. Fuel duty has already increased by Ksh8 per litre.

The government's rapid Economic Stimulus Programme and 'Post Covid-19 Economic Recovery Strategy' was supposed to help grow the economy by 5.8% in 2021.

That growth target looks unlikely to be met with some restrictions on businesses still in place and the tourism and service sectors still hit by the pandemic, although so far the central bank has kept inflation within its target range of 2.5% to 7.5% range even as transport costs rise (AC Vol 61 No 13, Rose-tinted budgets).

As the Jubilee party government enters a rocky political period ahead of the 2022 elections its economic priorities will be jobs and the cost of living, both of which have come under heavy pressure since the pandemic started a year ago. Much will depend on how quickly the government can roll out its vaccination programme, its main tool to fight the pandemic's social and economic damage.



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