Kenya recently entered into a memorandum of understanding (MoU) with Nippon Export and Investment Insurance (NEXI) to issue a Samurai bond valued at USD 500 million (KES 80 billion) in two phases, with completion expected within the next four months and utilization earmarked for the fiscal year FY’2024/2025.
The decision to pursue a Samurai bond raises considerations regarding its advantages and disadvantages for Kenya. One benefit is its potential to mitigate Kenya’s exposure to the US dollar, which has been strengthening against the Kenyan shilling, leading to a 26.8% depreciation in 2023 and a 2.0% year-to-date decline.
This currency depreciation amplifies international debt repayment costs denominated in dollars, and therefore, the issuance of a Samurai bond could alleviate pressure on Kenya’s foreign currency reserves and bolster the shilling’s value in the short term.
Additionally, accessing funding from Japan offers the advantage of lower interest rates, as Japan currently maintains one of the world’s lowest rates at -0.1%, aimed at stimulating inflation following a period of deflation.
However, issuing a Samurai bond also entails drawbacks. Notably, repayment of the bond will be in yen, potentially subjecting Kenya to increased debt expenses if the yen appreciates against the shilling in the future, influenced by the monetary policies of the Bank of Japan.
Furthermore, compliance with Japanese regulations may pose challenges, potentially limiting Kenya’s flexibility and transparency compared to other markets.
In summary, Kenya’s pursuit of a Samurai bond represents a strategic effort to diversify funding sources and support its green growth agenda. Yen-denominated borrowing offers the advantage of diversifying Kenya’s debt currency mix and mitigating exchange-rate risks.
Nonetheless, careful management is required due to associated risks and challenges. Success will hinge on the economic and political stability of both Kenya and Japan, along with global market conditions. As of September 2023, Kenya’s external debt in yen accounted for 3.9%, contrasting with 67.5% in USD, 21.1% in Euros, 5.0% in Yuan, and 2.3% in Pounds, according to the Central Bank of Kenya (CBK).
