Digging a Hole to Fill another Hole: Case of Kenya’s Eurobond

Kenya’s economy seems to be in a limbo. With constant press briefings and with constant assurances by the Cabinet Secretary for Treasury Henry Rotich that “the economy is stable and on the right path” is only serving to raise more eyebrows as to what might be going on in Kenya’s economy.

According to many Kenyans, when the economy of the country used to be on the right path, the Treasury never used to hold constant press briefings to brief and assure the country that nothing was amiss. Kenyans have now been smelling a rat and they feel, something is not right.

With the general economy having lost more than 1.5 trillion shillings in a span of four months, the private sector having lost 0.7 trillion shillings under the same period and with the boycott call from the opposition, National Super Alliance, something is cooking and when it will be ready, nobody will want to be served.

In December 2016, Kenya’s public debt according to World Bank stood at 3.827 trillion shillings or 51.50 percent of the total Gross Domestic Product (GDP). This year, the debt is said to be more than 4.4 trillion shillings with the World Bank calling on Kenya to check on its borrowing appetite.

The government of Kenya, through the National Treasury, has insisted that the country was still in a “borrowing range” and that the debt was “sustainable” and that the government was laying down plans on how to settle the ever-ballooning public debt.

On Wednesday, CS Henry Rotich disclosed just how the government was planning to pay its debts. Simple. The government was planning to take another syndicated loan ahead of a planned issuance of another Eurobond to finance another Eurobond whose maturity was due to October was extended by six months. Some will call it brilliance, the perfect case of digging one hole to fill another.

In 2015, Kenya took a syndicated loan of 77.25 billion shillings. The loan was due to mature in October 2017 but the maturity was extended to April 2018 to give more room to the government to put down a refinancing plan. In June 2014, Kenya issued a debut Eurobond that was worth two billion US Dollars. The bond was oversubscribed and the country got better interest rates than Ghana and Zambia who had also issued the same. From the bond, the government managed to pay 600 million US Dollars syndicated loan which has matured but maturity extended by three months.

In March 2017, the government borrowed 82 billion shillings in yet another syndicated loan from Standard Chartered Bank, Standard Bank, Citi Bank and Merchant Bank.

NB

A syndicated loan, also known as a syndicated bank facility, is a loan offered by a group of lenders – referred to as syndicate – that work together to provide funds for a single borrower. The borrower could be a corporation, a large project or a sovereignty, such as a government.

As the country continues to borrow, questions abound:

• Is the country borrowing for the current generation for future generations to pay?
• Can the country be able to tame her borrowing appetite?
• Can the money that has been borrowed so far?