In a bold move to sustain its infrastructure ambitions while grappling with ballooning national debt, Kenya is exploring the issuance of sovereign bonds in Hong Kong. The strategic pivot reflects a growing urgency to diversify financing models, especially as the country faces tighter constraints from traditional lending sources due to its rising debt-to-GDP ratio.

Foreign Affairs Principal Secretary Korir Sing’oe confirmed the development, emphasizing that the idea is still under consideration but aligns with the government’s broader fiscal strategy. “We are looking for innovative ways to finance our projects, and floating bonds in Hong Kong is an idea that could be considered,” he said.

This step toward the East Asia financial hub is more than just a creative attempt to attract foreign capital—it represents a recalibration of Kenya’s external borrowing posture and a critical test of international investor confidence in the country’s long-term economic stability.

Why Hong Kong?

Hong Kong stands as one of the world’s most robust and dynamic financial centers. Its well-established regulatory frameworks, deep capital markets, investor-friendly tax regime, and strategic access to global capital make it an increasingly attractive venue for sovereign debt issuance, particularly for emerging economies looking to tap into Asia’s vast investment pool.

Unlike Western capital markets that have recently tightened borrowing conditions in light of geopolitical instability and economic slowdown, Hong Kong remains relatively open to emerging market issuers. Kenya’s potential entry into this market signals its intent to engage non-traditional partners and leverage new financial ecosystems for development funding.

Additionally, Hong Kong’s investor base includes a significant number of institutions with a growing appetite for infrastructure-backed debt and ESG-aligned (Environmental, Social, and Governance) investments. Kenya, with its climate-resilient projects and green transition goals, may find favor among such investors.

Mounting Debt Pressures

Kenya’s decision to seek alternative financing options is not without urgency. Over the past 15 years, the country’s public debt has surged at an unprecedented rate. In 2010, the national debt stood at 39 percent of GDP—a manageable figure by global standards. However, by March 2023, that number had escalated to a staggering 68 percent.

The debt explosion is largely attributed to the massive borrowing spree undertaken between 2013 and 2022 during President Uhuru Kenyatta’s administration. Billions of dollars were funneled into large-scale infrastructure projects—standard gauge railways, highways, ports, and energy plants—intended to spur economic growth and boost regional connectivity. However, the returns on many of these projects have fallen short, with some turning into white elephants plagued by inefficiencies and corruption scandals.

As of January 2025, Kenya’s total public debt reached KSh 11.2 trillion (approximately USD 85 billion), prompting concern among economists and international lenders alike. The situation has led to tighter fiscal space, reduced flexibility in policy choices, and increased debt servicing costs—factors that have made new borrowing both politically sensitive and economically risky.

Fiscal Reforms and IMF Targets

In response, the National Treasury, under the stewardship of Cabinet Secretary John Mbadi, has committed to a series of fiscal reforms aimed at reducing the country’s debt burden. These include cutting non-essential public spending, expanding the tax base, and improving public financial management.

The government is also targeting a reduction in the debt-to-GDP ratio to below 55 percent within the next two years. The goal is to further lower it to 52.8 percent by the 2027–2028 fiscal year, aligning with sustainability benchmarks set by the International Monetary Fund (IMF) and the World Bank.

To support this effort, Kenya is ramping up its domestic revenue mobilization strategies, including digitizing tax systems and cracking down on tax evasion. However, given the scale of its infrastructure pipeline and the significant financing gap, domestic sources alone are unlikely to suffice—hence the need for international markets like Hong Kong.

Infrastructure Ambitions Still Alive

Despite its fiscal constraints, Kenya has shown no sign of scaling down its infrastructure ambitions. Key projects on the horizon include the expansion of the Lamu Port, construction of new highways and expressways, modernization of the Nairobi commuter rail system, and completion of the Konza Technopolis—a smart city project designed to spearhead Kenya’s digital transformation.

These projects are central to the country’s Vision 2030 blueprint, which seeks to transform Kenya into an industrializing, middle-income economy. Yet, financing them has become increasingly challenging amid rising global interest rates and Kenya’s growing risk premium in international debt markets.

A successful bond issuance in Hong Kong could unlock new avenues for long-term, concessional financing. It would also mark a significant shift in Kenya’s financial diplomacy, signaling its openness to East Asian capital markets at a time when many African countries are reassessing their traditional debt dependencies.

AIIB Membership: A Strategic Advantage

Another key development bolstering Kenya’s financial outlook is its recent accession to the Asian Infrastructure Investment Bank (AIIB), a multilateral lender established in 2016 to support infrastructure development across Asia and beyond.

Kenya’s AIIB membership grants it access to concessional funding for projects related to transport, energy, water, and climate adaptation. The bank’s emphasis on sustainability, transparency, and regional integration aligns well with Kenya’s development priorities, particularly in the areas of green infrastructure and resilience-building.

AIIB has already financed major projects in countries such as Indonesia, Bangladesh, and India, and Kenya could soon benefit from similar financial support mechanisms. Combined with bond issuance in Hong Kong, AIIB backing could significantly de-risk Kenya’s infrastructure pipeline and attract more co-financing from development partners and private investors.

Balancing Growth and Prudence

For Kenya, the challenge now lies in striking a delicate balance between growth and fiscal responsibility. While infrastructure is a key enabler of economic development, unchecked borrowing has already pushed the country toward the edge of a debt crisis. The government’s recent emphasis on public-private partnerships (PPPs), better project appraisal mechanisms, and increased transparency in public procurement suggests a learning curve informed by past mistakes.

At the same time, Kenya’s economy continues to demonstrate resilience. Agriculture, tourism, ICT, and financial services remain strong contributors to GDP. The recent rebound in international tourism, growing interest in tech startups, and efforts to expand exports under the African Continental Free Trade Area (AfCFTA) offer promising revenue streams that could ease the fiscal burden over time.

What Lies Ahead

Kenya’s flirtation with Hong Kong’s bond market may soon become a litmus test for its global credit standing. Success in this venture could enhance investor confidence and set a precedent for other African countries looking to tap into Asia’s vast capital reservoirs.

However, the path ahead will not be without challenges. Market conditions remain volatile, and investor sentiment toward frontier markets can shift rapidly due to global economic uncertainties, geopolitical tensions, or domestic instability.

Yet, if managed prudently, Kenya’s approach—leveraging Hong Kong’s financial architecture, aligning with AIIB’s sustainable finance principles, and committing to internal fiscal reforms—may chart a new course in African sovereign financing.

In a world where capital is becoming more discerning and development needs more urgent, Kenya’s willingness to adapt, innovate, and diversify could well make the difference between stagnation and sustainable progress.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

24th April, 2025