The government will use funds from the newly acquired loan from World Bank to settle the pending Eurobond debt that is maturing this month.
This has been revealed by the Central Bank of Kenya Governor Kamau Thugge. This move will see Kenya use a portion of the Sh. 156 billion it has freshly received from the World Bank to repay the outstanding Eurobond debt balance of Sh. 65.3 billion that comes into maturity on June 24, 2024.
“Part of the disbursement will be used to settle the $500 million of the remaining Eurobond debt,” said Mr. Thugge.
Kenya first made a partial payment of this debt in February this year. The National Treasury announced in a notice that it had bought back $1.44 billion out of the outstanding $2 billion of its 2014 Eurobond, opting to utilize the entire amount it raised from a new bond that was issued in early February to partially retire the older paper.
The new bond, whose sale concluded on February 13, raised a gross amount of $1.5 billion, which netted at $1.46 billion after payment of lead arranger fees.
The National Treasury had said in a notice on the outcome of the buyback exercise that bondholders had offered to sell a total of $1.48 billion. The buy back was confirmed by President William Ruto who was under pressure to reassure investors that Kenya would not default on the debt.
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“The successful execution of both the buyback and the new bond demonstrates strong investor confidence in Kenya through the international capital markets and a vote of confidence in the government’s overall debt management strategy,” said Ruto.
This partial repayment was largely attributed as one of the reasons behind the strengthening of the Kenya Shilling from lows of 162 to the current levels of around 131 to the greenback.
Apart from settling the outstanding debt, the loan from the World Bank is now expected to shore up the shilling in the forex exchange market. The World Bank loan was approved last week to help the country address short-term fiscal pressures and accelerate green initiatives.
The new loan from World Bank dubbed under the Kenya Fiscal Sustainability and Resilient Growth Development Policy Operation (DPO) is the first in a series of three. A Development Policy Operation (DPO) is a financial instrument used by the World Bank to provide budget support to countries for policy and institutional reforms.
“For Kenya to return to moderate risk of debt distress, the government will need to maintain the fiscal consolidation path, promote export growth, enhance the country’s policy and institutional assessment to increase its debt carrying capacity and proactively manage liabilities by focusing on concessional financing to reduce interest costs and repayment pressures,” Naomi Mathenge, World Bank Senior Economist for Kenya, said after the loan was approved.
