- Ruto’s sentiment comes barely a week after his lead economic advisor, David Ndii, said that Kenya could have defaulted the bond were it not for IMF's intervention.
- Ndii said the government is operating on limited resources, inadequate to meet several obligations, including debt repayment.
Image: FILE
The government has committed to pay $300 million (Sh45.6 billion) in December as the initial installment to pay the $2 billion Eurobond due next year in June.
Speaking on Thursday during the State of the Nation address in parliament, President William Ruto said the payment will ease the concerns caused by the debt that was issued in 2014.
“The debt has since become of much concern to the citizens, markets and out partners,” Ruto said.
“In line with other commitments and intentions, this move has helped us normalize our relationship with international lenders such as IMF, the World Bank and various development partners that have seen them collaborate with us towards our bottom-up transformation agenda.”
Ruto’s sentiment comes barely a week after his lead economic advisor, David Ndii, said that Kenya could have defaulted on the bond if the International Monetary Fund (IMF) did not step in.
He said the government is operating on limited resources, inadequate to meet several obligations, including debt repayment.
"Without the IMF programme, we would probably have defaulted, let's be honest,'' Ndii said.
He added that as of now, the repayment for the $2 billion Eurobond which was sourced to partly settle a syndicated loan and fund infrastructure is fully funded.
Kenya was in July was given a negative status in terms of long-term foreign currency issuer default status by the credit rating agency, Fitch.
This was from the stable rating, meaning the country is at high risk of loan defaults.
It further means that the country could be staring at increased external financial constraints.
“The ratings prompt multiple implications in the country’s pursuit of external funding under the fiscal consolidation policy, in a bid to cushion itself from runaway fiscal space,” Fitch said.
The downgrade would also mean increased interest rates for further loans amidst the high funding requirements, including the weakening reserves, rising financing costs and the uncertainty regarding the fiscal trajectory.
Fitch further said the rating could pose challenges in the sovereign external debt service, as it would rise sharply to $4.3 billion in the financial year ending June 2024, up from $2.8 billion in the previous year.
The downgrade ratings were reflected in IMF's economic outlook report in October, which said African countries whose Eurobond repayments of close to $6 billion are due next year, including Kenya, will struggle to repay due to high-interest rates.
It noted that the yields on Eurobonds have more than doubled to hit past 12 per cent mark.
"At current yields, no Eurobond has been issued since April 2022 and some countries may struggle to roll over near-term liabilities- indeed, aggregate upcoming Eurobond repayments of about $6 billion in both 2024 and 2025 are of particular concern,'' IMF says.