Kenya has just launched a seven-year $1.5 billion Eurobond which has come in for some criticism. However it is the right thing to do.
Kenya's main economic problem is that in August it has to repay the $2 billion Eurobond contracted by the previous government. Some analysts were disappointed that government did not manage to repay this debt from normal tax receipts, especially as government had indicated that it would try to do so.
However Kenya will be repaying $500 million from its own resources as it only issuing a bond of $1.5 billon.
The new Eurobond pays interest of 10.37 per cent, well above the six per cent paid by successful countries in the Global South.
This interest rate is considered excessive but the benefits outweigh the cost.
Firstly, it has restored confidence in the economy. There is now no prospect of default in 2024.
Secondly, the Kenya shilling has rapidly appreciated as a result. There is no longer a shortage of dollars as the government is not mopping up all available forex to repay the outstanding Eurobond. A stronger shilling reduces interest repayments for government as well as the cost of living.
So this new Eurobond is cheap at the price.
Quote of the day: "They talk about the failure of socialism but where is the success of capitalism in Africa, Asia and Latin America?"
Fidel Castro
The revolutionary became Premier of Cuba on February 16, 1959
