Kenya abandons Eurobond plans

Kenya has made a strategic pivot from its initial plans to issue a $1 billion Eurobond, opting instead to explore borrowing options from a consortium of commercial banks. The decision came after the National Treasury and Planning Ministry received bids at a high 12% interest rate for the Eurobond issuance. Speaking to CNBC Africa, Chathil Oguto, Economist IC Asset Managers, shed light on the rationale behind this move and its implications on Kenya's financial landscape. With the Eurobond yield rates soaring to 15% from an initial 4% at the beginning of the year, the Ministry of Finance faced the prospect of pricing the bond at an even higher rate. This surge in yields was attributed to global economic factors, including the Russia-Ukraine conflict and the Eurozone inflation rate hovering around 8.28 to 8.5%. As a result, the ministry decided to explore longer-term loan options to mitigate the impact of high yields on the Eurobond offering. The decision to shift focus to syndicated loans, including engagements with international banks, aims to capitalize on variable interest rates amidst tightening monetary policies. However, concerns arise over the potential repercussions of escalating interest rates linked to external economic factors such as the US Federal Reserve's rate hikes. Oguto highlighted the challenges posed by the evolving interest rate environment, emphasizing the need for prudent fiscal management to navigate the current debt landscape. With Kenya's debt ceiling set to increase to 10 trillion shillings for the next financial year, questions loom over the sustainability of borrowing practices and the allocation of funds across different sectors. Oguto underscored the importance of expenditure management in light of limited revenue growth, urging a strategic approach to address the country's fiscal challenges. The discussion also touched on fuel subsidies and the impact of rising global oil prices on inflationary pressures. While recent parliamentary approvals allocated funds for fuel subsidies, concerns persist over the long-term viability of such measures amid volatile market conditions. The impending political transition adds another layer of complexity to Kenya's economic outlook, with uncertainties surrounding future policy decisions and financial stability. As the country navigates through a period of economic uncertainty and political transition, stakeholders must remain vigilant in addressing key fiscal challenges and charting a sustainable path forward.