Kenya’s debt is projected to hit the Kshs 9.4 trillion mark at the end of June this year, according to the National Treasury. As at December 2022, the government owed Kshs 4.7 trillion in external debt and Kshs 4.5 trillion in domestic debt.
The overall debt stock moved upwards in 2021 and 2022, largely because of new multilateral borrowing, but remained stable at 34.5 percent of GDP.
With this in mind, Kenya stares at a tough economic test ahead in debt servicing that could cause debt distress. This is backed up by the high bond yields that are still above rates registered at the beginning of 2022, between six and nine percent, and during the issuance of the papers.
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The country could face debt servicing constraints if it fails to redeem the ten-year Eurobond due in June 2024.
Latest data by the Central Bank of Kenya put the 2024 Eurobond yield at about 13.5 percent for the week ending March 31, trading almost twice the 6.9 percent rate registered at issuance in 2014.
According to the exchequer, yields on Kenya’s Eurobonds declined by an average of 46.6 basis points in the past week, with the 2024 maturity coupon declining by 51.0 basis points.
Eurobonds’ yields have generally shrunk by almost 52 percent since they peaked in mid-July last year, depicting improved conditions towards debt servicing.
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The prevailing global economic headwinds and the current structure of external debt have also pushed up the costs of debt servicing.
Commercial debt would have risen higher if the mid-2022 Eurobond had been issued, but a spike in the average yield on existing bonds, from 6.7 percent in January 2022 to 14.7 percent in June, made a launch financially unviable.
To cushion itself from the debt burden, between 2020 and 2022, the country shifted its borrowing from more multilateral and bilateral borrowing to concessional borrowing from the IMF, World Bank and the African Development Bank.
Kenya needs to strategize on successful redemption of the 2024 Eurobond, either via refinancing or by securing alternative loans to ease debt pressures.
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