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Updated May

Kenya headed for another Eurobond

Published Fri, May 4th 2018 at 00:00, Updated May 3rd 2018 at 23:54 GMT +3

Kenya plans to borrow Sh300 billion from the international market this financial year.

This means the country could be headed for a third round of borrowing through issuance of a Eurobond under the planned commercial debt-financed deficit worth Sh300 billion.

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An alternative to raising the funds under commercial financing terms would be through syndicated loans, but they are more costly, hence less desirable unless in addressing emergency distress.

The other half of the budget hole worth Sh600 billion is to be plugged through donor support, concessional debt granted by friendly nations, and project loans such as the type issued by China.

It would be the third issue of a Eurobond, also known as sovereign bond, after the two previous issues of June 2014 and February 2018, highlighting growing dependence on debt for survival.

Budget estimates tabled in the National Assembly yesterday contained the approved spending and financing plans for the financial year that starts July 1.

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“The Government will continue to diversify the sources of financial resources over the medium term by maintaining a presence in the international capital markets,” read a summarised report of the national budget.

The National Treasury prepared the document in which it also indicated that it would try to raise as much debt as possible on concessional terms – which are, however, purely at the discretion of the lenders.

“Non-concessional and commercial external borrowing will be limited to development projects with high financial and economic returns,” the summary read further.

The projects alluded to include high-capacity roads that can be tolled to generate quick returns and pay off the loans.

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Treasury Cabinet Secretary Henry Rotich is seeking approval from legislators before presenting his budget statement in the House mid next month.

He had previously said Kenya was likely to remain in the Eurobond market in raising capital, adding that no country had ever tasted the international markets and left.

“Once you go international, you do not leave,” Mr Rotich said after concluding a global tour where lenders gave Kenya Sh200 billion in February.

He is paying Sh4.75 billion as interest on that loan in the four months to June 30, and a further Sh15.5 billion in the next financial year starting July 1.

In the 2014 debt issue, he raised slightly over Sh275 billion – against a target of Sh200 billion, with the expenditure of the proceeds kicking up a nationwide storm over possible embezzlement. A portion of the debt worth Sh75 billion is repayable by June next year, a significant amount considering that some crucial expenditures have been shelved because the Government is broke.

Sh78 billion is budgeted for the repayment, plus Sh19.5 billion in interest annually since issuance.

Following the planned repayment of the first portion, the interest of the Eurobond will fall to Sh15.2 billion.

Rotich’s apparent affinity for the international markets and the broader appetite for a debt-funded development budget has unsettled critics, who have expressed concern at the rapid accumulation of loans.

As an illustration of the cost of borrowing, Kenya will have repaid at least Sh520 billion on the February loan.

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