Investors give thumbs up to Kenya economy

Tuesday, June 22nd, 2021 00:00 | By

Lewis Njoka @LewisNjoka

Investors continue to show confidence in Kenya despite questions on the country’s debt sustainability and deteriorating credit rating.

Treasury raised $1 billion (Sh108 billion) from a 12-year Eurobond last week Thursday and plans to float two more Eurobonds in the coming financial year.

Kenya’s fourth Eurobond will be used to plug the budget hole left by poor revenue collection amid Covid-19 pandemic.

The Eurobond, listed on the London Stock Exchange, was oversubscribed receiving offers totalling to $5.4 billion.

With this, Kenya’s debt burden soars further and is expected to surge over Sh10 trillion by the time President Uhuru Kenyatta’s last budget is implemented, amid plans to raise the debt ceiling from the current Sh9 trillion.

Kenya has cleared some of its international debt, but some that were restructured under the G20 and Paris Club arrangement are due at the end of the financial year, coupled with domestic debts.

On June 10, the World Bank approved a Sh80.8 billion ($750 million) loan for Kenya to go towards supporting the Covid-19 economic recovery efforts despite ranking Kenya as having a substantial risk overall.

Documents seen by Business Hub reveal that the World Bank ranks Kenya’s risk in the categories of political governance and macroeconomics as substantive. Other categories were ranked as moderately risky.

In March, global rating agency, S&P, downgraded Kenya’s rating from B+ to B, a move which makes it more expensive for Kenyans to acquire loans.

National Treasury Cabinet Secretary, Ukur Yatani, termed the oversubscription a sign that investors across the globe had confidence in Kenya’s economy and its medium-term economic prospects.

Bond issuance

“The overwhelming response from global investors reflects the market’s continued confidence in Kenya’s Economic Recovery Programme supported by the IMF and is in line with our Medium-Term Debt Management Strategy approved by Parliament.

We want to thank investors for their strong participation in the bond issuance,” he said.

According to Churchill Ogutu, the head of research at Genghis Capital, Treasury plans to float two more Eurobonds in the coming financial year.

“The next financial year, they are expected to go for another Eurobond, $1 billion and another $3.5 billion (Sh377 billion) for refinancing the syndicated loans.

In total we are looking at $4.5 billion (Sh485 billion) Eurobond issuance in the next financial year,” he said.

In the recent past, doubts have been raised over the country’s public debt sustainability with Treasury insisting that the debt is still within sustainable levels.

Currently, the debt stands at Sh7.3 trillion as of March of which Sh3.8 trillion has been borrowed externally while Sh3.6 was borrowed domestically.

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