Kenya stares at uncertain debt market

Thursday, May 12th, 2022 01:05 | By
Auditor General report paints grim image even as underperforming State agencies continue to gobble up cash from the Exchequer.

An expensive debt environment looms for Kenya as Eurobond yields surged further last week, even as the National Treasury indicated it will go ahead with the June Eurobond issue, citing predictability.

Yields on Eurobond debt rose by another 51 basis points last week after rising by 60 basis points the previous period to raise Kenya’s interest payments in what made them unattractive to investors.

“Yields on Kenya’s Eurobonds increased by an average of 51 basis points. The yield on the 10-year Eurobond for Angola and Ghana also increased,” Central Bank said in its weekly bulletin.

Speaking about the bonds, however, Treasury Cabinet Secretary Ukur Yattni was quoted last week saying Kenya will still issue a $1 billion Eurobond in June this year, despite the rising yields.

“We want to be predictable,” Yattani told journalists last week. Treasury had earlier published on its website that it will not be issuing the planned debt but later pull the notice down after it was picked by the media. Treasury had indicated that the international debt market had become volatile and rates had gone up and hence it was not issuing the June Eurobond.

Treasury did not justify the change of decision, having hinted it will scrap the planned issue, in a scenario that perhaps reflects a tense environment at Treasury amidst a volatile international debt market.

Experts say the situation has been worsened by sustained war in Eastern Europe and recent interest rate increases in the United States.

Cost of money

This means the cost of money has increased globally and hence developing economies will pay more to borrow. Kenya’s yield curve is also rising compared to two years earlier with short and long term debts becoming more expensive for the government to service.

The appetite for the bonds follows government intent to plug a Sh846 budget deficit in the Sh3.3 trillion budget and the country’s public debt is may soar even higher.

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