Kenya is strategizing to repurchase up to 25% of its $2 billion international bond expiring in 2024. This initiative comes in anticipation of acquiring new loans and is designed to address the growing unease over its ability to manage the forthcoming debt, central bank governor Kamau Thugge informed Reuters.
To facilitate this, Kenya is engaged in negotiations to secure between $500 million and $1 billion in commercial loans. These discussions involve two prominent regional policy banks: Trade & Development Bank and the African Export-Import Bank. Thugge provided this insight while attending the joint World Bank and IMF conferences in Marrakech.
“A portion of the acquired loan will be allocated for the bond buyback and to manage liabilities. The remaining funds will support the national budget,” Thugge explained. He had earlier commented on Kenya’s intent to “systematically decrease the Eurobond’s liability.” Expressing urgency, Thugge mentioned, “We’re keen to initiate the buyback without delay.”
The international community, especially foreign investors, is monitoring Kenya’s strategy for the $2 billion bond. Factors like the nation’s escalating debt payments, a weakening currency, and surging bond yields, which have impeded many emerging economies from accessing international capital markets, are adding to the scrutiny.
Thugge further disclosed that Kenya is collaborating with the International Monetary Fund (IMF) to enhance its loan program, which is slated for its sixth review in November. Additionally, discussions with the World Bank are underway regarding supplementing a planned $750 million loan in March.
“We’re open to seeking extraordinary access, understanding it comes with additional stipulations. However, given the reforms we’re implementing, we’re willing to negotiate,” Thugge emphasized. This special access would grant Kenya the flexibility to request an amount exceeding its standard IMF funding limit. Approval would mark the third expansion of the loan program, initially pegged at $2.3 billion in 2021.
Should Kenya find itself hindered from floating new international bonds and decides to address the $2 billion debt using its foreign currency reserves, the reserve is projected to hover around $7 billion by June 2024’s end, Thugge assured.
As of October 5, the central bank reported foreign exchange reserves worth $6.9 billion, sufficient to cover approximately 3.7 months of imports. On October 3, the central bank’s primary interest rate remained at 10.5%. Inflation marginally rose to 6.8% in September from 6.7% in August, yet it dipped below the 7.5% benchmark in June for the first time annually.
Thugge acknowledged current exchange rate pressures and stated, “Our aim is to sustain the interest rates for a foreseeable period,” without specifying an exact duration. He further committed to intervening if inflation surpasses 7.5% but hinted at a potential rate reduction if inflation dwindles to 5% and exchange rate pressures ease.
Despite Kenya’s looming debt challenges, Thugge remains optimistic about the economy. He projects growth rates of 5.5% for the current year and approximately 6% in 2024. These figures outpace the IMF’s growth predictions for Sub-Saharan Africa, which are 3.3% and 4% for the same periods, respectively.
