Kenya has successfully issued a new Eurobond worth $1.5 billion to pay off its maturing debt and ease market concerns about its ability to service its obligations.
The East African nation announced on Thursday that it would buy back more than $1.4 billion of its $2 billion international bond due in June, using the proceeds of the new seven-year debt at 10.375% interest rate.
The bond sale attracted orders of over $5 billion, reflecting strong investor confidence in Kenya’s economic recovery prospects amid the global pandemic. The country has also secured concessional loans from the International Monetary Fund and the World Bank to support its fiscal and health response.
Kenya’s Finance Minister Ukur Yatani said the bond issuance was part of the government’s strategy to manage its public debt portfolio and reduce the cost and risk of borrowing.
“We are pleased with the outcome of this transaction as it has allowed us to term out our near-term maturities, achieve substantial savings, and also finance our development objectives,” he said in a statement.
Kenya is not the only African country that has tapped the international bond market this year. Benin, Ghana, and Ivory Coast have also issued Eurobonds in recent weeks, taking advantage of the low interest rates and high liquidity in the global financial system.
However, some analysts have warned that African countries should be cautious about accumulating more debt, especially in foreign currency, as it could expose them to exchange rate risks and debt distress.
According to the World Bank, the average public debt-to-GDP ratio in sub-Saharan Africa rose from 40% in 2015 to 62% in 2020 and is projected to increase further to 66% in 2021.
Kenya’s public debt stood at 69% of GDP as of June 2020, up from 50% in 2015. The country has been facing fiscal pressures due to the impact of the pandemic on its revenue collection and economic growth.
The IMF projects that Kenya’s economy will grow by 7.6% in 2021, after contracting by 0.1% in 2020. The recovery is expected to be driven by the easing of lockdown measures, the rollout of vaccines, and the implementation of structural reforms.
Despite the challenges, Kenya remains one of the most dynamic and diversified economies in Africa, with a vibrant private sector, a youthful population, and a strategic location as a regional hub.
The government has also expressed its commitment to pursue fiscal consolidation, enhance transparency and accountability, and improve the business environment to attract more investment and create more jobs.
Source: Bloomberg
