Kenya is among 14 sub-Saharan countries that will struggle to pay their loans post 2021, the World Bank has said. This even as the country is expected to pay about Sh400 billion in the second tranche of the first Eurobond issue in 2024.
The first Eurobond was Sh280 billion borrowed in 2014 in five and 10-year tranches. The first five year tranche expected to cost tax payers Sh97.71 billion will be paid next year.
“Large Eurobond repayments from 2021 could pose significant refinancing risk in the region,” the bank said in its October issue of the African Pulse released on Wednesday.
This means that Kenya will find it rough to sustain its habit of borrowing from lender A to pay lender B due to high intrest rates charged on the loans that will push it further in the red.
Six months ago, the government faced difficulties raising Sh75 billion syndicated loans from creditors,it requested them to wait for six months so as to raise the Eurobond to pay them up.
However, ten per cent of the creditors rejected the request. Treasury had to take another Sh75 billion syndicated loan of seven years from he Trade Development Bank which it used to pay off the investors.
In February this year, Treasury announced raising Sh202 billion in a new sovereign bond issue. The bond was issued in two equal tranches of 10 and 30 years for an annual intrest rate of 7.25 per cent and 8.25 per cent respectively. They are expected to mature in 2028 and 2048.
According to the African Pulse, a slower than projected growth in the euro area and China, which have strong trade and investment links with Sub-Saharan Africa, would adversely affect the region- Kenya Included.
The report notes that the slow down would adversely affect Foreign Direct investments hence lowering Kenyas dependence on them.Apart from the FDIs, Kenya also depends on its export earnings, tourist receipts, and diaspora remittances to grow its dollar reserves used in paying the foreign currency denominated debt.
“Sharper than anticipated currency weaknesses could make the servicing of foreign currency rising concern in the region, more challenging,” the report said in attribution to why redeeming Eurobond post 2021 will be a challenge.
As at yesterday afternoon, the Kenya shilling was trading at Sh100.85 against the Dollar. Last month, Renaissance Capital said the shilling could drop to Sh105.