Kenya’s Government is said to be in talks with interested parties that will see Nairobi strike a deal that will allow it to channel funds into social projects.
- Kenya is seeking a kind of debt swap that would bolster its finances as it faces a crucial repayment deadline while channeling funds into basic social services, according to sources close to the discussions.
- With has $2 billion in Eurobond debt maturing in June, Kenya currently working with banks and a small group of potential investors to explore the structure of such a swap.
- Several countries on the continent are also faced with Eurobond maturities in 2024, with Kenya facing the largest amount due.
With the prevailing high interest rates and currency devaluations, these African countries including Kenya are set to see higher debt service costs and it remains to be seen whether there will be any defaults or restructuring in the year. While countries like neighbouring Ethiopia defaulted on its Eurobond, Kenya may not travel the same route based on both political rhetoric and macroeconomic decisions made in 2023 and early 2024.
According to Eric Musau, Executive Director – Research, Standard Investment Bank, most of the Sub-Saharan African countries took advantage of record-low interest rates over the last decade to borrow for infrastructure and other projects, and to support their economies during the coronavirus pandemic.
“With many of these debts now coming due and interest rates having risen sharply during the past two years, these countries are facing difficulties refinancing at affordable rates,” said Musau.
- Available evidence shows that countries that went to default were led by populist governments that lowered taxes to win public support and then ended up with lower collections.
- Cases such as those of Sri Lanka, Zambia, and Ghana – already staring at a possible default, all possess deadly signs revolving around trying to cut taxes to build up their economies.
- The Kenya Government appears to have prioritised improving tax collection and revenue-raising efforts so as not to fail in repaying its foreign debt obligations.
Part of the reason for the focus on tax revenues is that Kenya is relying on additional inflows from the IMF program and the World Bank with disbursements expected by the middle of this year. These deals with Washington, however, come with certain concessions such as multi-year fiscal consolidation efforts by raising tax revenues and rationalizing spending while protecting priority social and developmental spending.