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In a strategic move to address concerns regarding its $2 billion 2024 international bond, Kenya is set to repurchase a substantial portion before year-end. Central Bank Governor Kamau Thugge unveiled this initiative during an exclusive interview with Reuters, emphasizing Kenya’s proactive approach to managing its fiscal responsibilities.

Kenya is actively negotiating with the Trade & Development Bank and the African Export-Import Bank, two respected regional policy banks, to secure funds. These funds will serve a dual purpose: to manage the Eurobond liability and provide budgetary support. Thugge had previously expressed the country’s commitment to gradually reduce its Eurobond liability, and this move aligns with that goal.

The urgency of the situation is acknowledged, and international observers are keenly watching how Kenya intends to navigate the repayment of the $2 billion 2024 bond. Kenya’s rising debt obligations, currency depreciation, and escalating bond yields are challenges that resonate with many developing nations facing difficulties in international capital markets.

Alongside negotiations with regional banks, Kenya is in discussions with the International Monetary Fund (IMF) regarding the potential augmentation of its loan program. The outcome of the sixth review in November will determine the terms of this augmentation. Additionally, discussions with the World Bank are ongoing to enhance a $750 million loan already scheduled for March.

Governor Thugge emphasized Kenya’s openness to exploring “exceptional access,” which would enable the nation to request funding beyond its established IMF limit. If approved, this would mark the third expansion of the loan program, originally set at $2.3 billion in 2021.

In the event that Kenya cannot issue new international bonds and needs to tap into foreign currency reserves to meet financial obligations, the central bank forecasts that reserves will amount to approximately $7 billion by the end of June 2024. As of October 5, the central bank reported $6.9 billion in usable foreign exchange reserves, sufficient to cover around 3.7 months’ worth of imports.

Maintaining financial stability, the central bank opted to keep its main interest rate at 10.5% on October 3. September’s inflation rate rose modestly to 6.8% from 6.7% the prior month, having previously fallen below the 7.5% target in June, marking the first time in a year. While Thugge refrained from specifying a timeframe, he emphasized that they would maintain current interest rates for the foreseeable future due to exchange rate pressures. However, they would take necessary measures if inflation exceeds 7.5%, and they would consider rate reductions if inflation dropped to 5% and exchange rate pressures eased.

Despite Kenya’s fiscal challenges, the nation’s economic growth prospects remain promising. Governor Thugge indicated that the economy is on track to expand by 5.5% this year and is projected to continue growing at a rate of around 6% in 2024. These growth forecasts surpass the IMF’s projections for Sub-Saharan Africa, offering a glimmer of hope amid Kenya’s financial complexities.

Photo Source: Boniface Okendo, Standard

By: Montel Kamau
Serrari Financial Analyst
12th October, 2023

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