Kenya may be forced to dip into the forex reserves reserves to payback part of the maturing Eurobond, a situation that could see the shilling fall further.
The Parliamentary Budget Office (PBO) however warns that repaying the entire $2 billion (Sh306 billion) Eurobond out of forex reserves may unnerve the market band saying a mixed payment plan seems the only viable option.
The position taken by the budget team comes at a time that the reserves have continued to drop below the statutory requirement to hit Sh1.03 trillion as of November 24, equivalent to 3.6 months of import cover.
PBO notes that despite concerns about credit ratings, a buyback at par, or below par, is a viable option because it would imply willingness to pay.
Central Bank of Kenya governor Kamau Thugge had earlier assured MPs that Kenya would not touch its reserves to payback the Eurobond.
Instead the governor said the country would buy back Sh$500 million (Sh76 billion), part would be settled by loans from the World Bank and IMF expected in the coming months to March 2024, while the balance would be deferred.
The parliamentary report however notes that there are concerns on the effects of the liability management options available for the government regarding the maturing Eurobond.
“Alternatively a blended strategy, that perhaps includes a partial buyback via an open tender and a smaller pay-out from FX reserves, may appear more reasonable. The authorities may opt to pay the Jun 2024 Eurobond maturity out of FX reserves,” the PBO Quarterly Economic & Fiscal Update for July-September 2023 reads.
Whichever liability management route the government opts for, whether a buyback or paying out from FX reserves, in the absence of a new Eurobond issuance, the government would need new funding from external markets.
The options include IMF, World Bank, and syndicated loans via multilateral agencies.
However, in a new development on November 28, Kenya indicated it had abandoned plans to access international financial markets this fiscal year, to repay its debt.
This has been attributed to the high cost of dollar debt, according to Treasury Secretary Njuguna Ndung’u.
Instead the country is seeking for less expensive concessional funding.
This has seen Kenya go easy on the floating a new bond on the international market in the medium term after getting fresh funding commitments from multilateral lenders.
National Treasury Njuguna Ndung’u in a statement said the country’s financing strategy going forward would be to seek concessional funding as the bond market is currently unfavourable.
The announcement comes following fresh financing from the International Monetary Fund to the tune of Sh 142.6 billion ($938m) under Extended Fund Facility (EFF) and Extended Credit Facility.
IMF commitment under the arrangements is expected to reach Sh673.4 billion ($4.43b) upon approval by the executive board.
On Monday 20, the World Bank announced total commitment to the tune of Sh1.82 trillion ($12b) in the next three years from 2024 to 2026.
