Kenya is strategically allocating a portion of the $1 billion loan from the World Bank to address imminent financial obligations. With the maturation of the debut 10-year bond approaching in June 2024, Kenya faces challenges such as dwindling foreign reserves, decreasing domestic revenue, and escalating expenditures, particularly in debt repayment.
Governor Kamau Thugge of the Central Bank of Kenya has indicated that the forthcoming disbursement linked to the Development Policy Operations (DPO) will be utilized to settle the remaining $500 million of the $2 billion bond issued in 2014.
This decision aligns with the World Bank Group’s approval of a $1 billion DPO in May 2023, aimed at offering budgetary support and facilitating crucial policy and institutional reforms. These reforms encompass various areas, including fiscal consolidation, enhancing competitiveness in agricultural exports, and bolstering transparency and accountability in governance.
Kenya has been anticipating disbursements from the World Bank, with an initial expectation of around $1.5 billion in March and April. Additionally, the issuance of a $1.5 billion Eurobond aimed to alleviate concerns about defaulting on financial obligations, albeit at a higher interest rate compared to previous issuances.
However, despite these efforts, challenges persist. Kenya’s foreign currency reserves have slightly declined, falling short of both statutory and regional thresholds. The Parliamentary Budget Office highlights ongoing concerns regarding debt distress, liquidity risks, and the increasing cost of debt service.
Kenya’s public debt has notably risen, reaching Ksh11.14 trillion ($85.69 billion) in 2023, with debt service consuming a significant portion of revenues. Legislative measures, such as the amendment to the Public Finance Management law, aim to address these challenges by setting a debt anchor at 55 percent of GDP by 2029.
Over the past decade, Kenya has tapped international capital markets, raising substantial amounts through Eurobond issuances. Despite successful bond placements, concerns over financing costs led to the cancellation of a $1 billion Eurobond issuance in 2022. However, in February 2024, Kenya opted for another $1.5 billion Eurobond issuance to fulfill impending financial obligations, including the repayment of maturing bonds.
