East African economies are starting the new year on a borrowing spree with their eyes set on commercial debt to spur their economies out of the Covid-19 pandemic downturn.
Kenya, Tanzania and Uganda have indicated they will be in the market as early as this month for a mix of sovereign bonds, syndicated and commercial loans as they seek to support their budgets, which have huge deficits, amid looming loan repayments for ongoing infrastructure projects.
Kenya plans to float two new sovereign bonds in the next six months to finance the budget and repay part of the its inaugural Eurobond floated in 2014.
Kenya’s National Treasury last week told the International Monetary Fund (IMF) that it plans to float an issue as part of the external component of budget financing for the current fiscal year, and another by June 2022 towards refinancing the 10-year $2 billion bond floated in 2014.
Nairobi is seeking $2.19 billion in the two commercial loans.
Just last June, Kenya floated a $1 billion bond.
“Kenya is likely to return to the Eurobond market in first half of 2022 to raise funds, with $1.1 billion pencilled into the 2021/22 budget, as well as a tender offer for part of the $2 billion 6.875 percent, 2024 Eurobond.
The Treasury is considering a euro-denominated issuance,” says the latest Sovereign Debt Radar by REDD, a market data and intelligence firm.
Nairobi is also looking at doing away with the $78.9 billion debt ceiling set two years ago as its debt stock of $67.5 billion is poised to shoot past that target.
The government had set to borrow $5.49 billion from the domestic market in the year ending June 2022, and as at December 10 it had already borrowed over half of that — $2.77 billion.
Expenditure on servicing loans is pegged at $5.46 billion, out of which $2.33 billion will be principal repayments for domestic debt.
In November 2021, the Treasury submitted a proposal to the Attorney-General and Parliament to amend the debt ceiling under the Public Finance Management Act.
According to the IMF, the new debt anchor will be set at 55 percent GDP, with debt measured in present value terms.
Kenya’s overall public debt has increased in recent years. Gross public debt increased from 44.4 percent of GDP at the end of 2015 to 71 percent of GDP at end of 2020, reflecting high deficits, partly driven by past spending on large infrastructure projects, and in 2020 by the Covid-19 global shocks.
About half of Kenya’s public debt is owed to external creditors.
In the third quarter of its financial year, Nairobi paid $262.5 million to Chinese creditors to ease a deadlock over debt repayments. The payments were made to Chinese lenders, most notably the Exim Bank, after they paused disbursements for projects in Kenya due to Chinese pushback to Kenya applying for a debt repayment suspension.
In January 2021, Kenya applied for the G20 Debt Service Suspension Initiative (DSSI), as it was finalising the details of a three-year $2.4 billion blended Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programme with the IMF, which was approved in April.
The DSSI application, which saw Nairobi receive $425 million relief until December, added to existing strains in its relationship with China, its biggest bilateral creditor.
While China’s Exim Bank is a widely recognised bilateral creditor, its $3.6 billion loan to Kenya for the construction of the standard gauge railway was extended on commercial terms, hence Beijing’s insistence that it should be treated equally to other commercial borrowers.
In the in 2021/2022 budget, Kenya set aside $1.03 billion for servicing its debt to China, of which $217.1 million is interest payments and $817.6 million is redemptions, according to budget documents.