Kenya’s Eurobond Buyback Deal Costs Taxpayers Sh7.3 Billion

By Alain Mugisho Nabalinda

The Government of Kenya has incurred a Sh7.3 billion cost in its recent Eurobond buyback and refinancing operation, highlighting the hidden fiscal impact of debt management strategies.

The cost stems from incentives offered to investors who surrendered older Eurobond issues early and agreed to purchase new longer-term bonds. To make the transaction attractive, authorities provided discounts on the new bonds and premiums on the old ones, essentially compensating investors for accepting lower yields or giving up their existing debt before maturity. These incentives – a discount of about Sh4.16 billion and premium payments totaling several billion shillings – added up to the Sh7.3 billion burden on taxpayers.

The strategy was part of a broader liability management exercise designed to ease near-term debt pressures and smooth Kenya’s Eurobond repayment schedule. By issuing new seven- and twelve-year bonds at lower coupon rates, the Treasury aimed to extend maturities and reduce the immediate refinancing risk associated with maturing external debt.

However, while such operations are common in international sovereign debt markets and can help manage cash-flow volatility, they are not without cost. The incentives offered essentially mean that Kenyan taxpayers underwrite the savings and risk preferences of global bondholders, drawing criticism from some economists who argue that the country could end up paying more in the long run.

The buyback comes amid a broader backdrop of elevated public debt. Kenya’s overall public debt has recently risen sharply, driven mainly by increased domestic borrowing, raising discussions about sustainability and budgetary pressure.

As the government continues to balance debt management with fiscal responsibility, analysts and policymakers will be watching closely to see whether the benefits of smoother debt maturities outweigh the short-term costs borne by the public.

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