Nairobi — President William Ruto has revealed that the country has made positive steps to deal with debt distress saying they will make a US$300 million payment in December 2023 towards the US$2.0 billion Eurobond maturing in June 2024.
President Ruto noted that his administration will pay the debt that has become a source of much concern to citizens, markets and our partners scaring away potential investors.
“We have worked hard, at home and further abroad, to mobilize a broad coalition of bilateral development partners, multilateral development banks and other agencies, which have rallied to pull our country back from the brink of debt distress,” he said.
The Head of State said the conduct of public borrowing by previous regimes had edged out the productive sector from the financial markets, raising the cost of credit and slowing down trade and commerce.
He averred that his administration has managed to put in normalized relationships with the International Monetary Fund, World Bank, the Africa Development Bank and various development partners to bolster the Bottom-Up Economic Transformation plan.
“The time has come, therefore, to retire the false comforts and illusory benefits of wasteful expenditure, and counterproductive subsidies on consumption by which we dug ourselves deeper into the hole of avoidable debt,” President Ruto noted.
The public debt stood at 60 per cent of the GDP at the end of 2022, the Treasury said, citing a debt sustainability analysis prepared by the IMF and the World Bank.
The Treasury has also doubled down on its efforts to swap the country’s short-term debt with longer-term issuances as uncertainty in the movement of interest rates leads to a contraction of new debt on short-term maturities, thus increasing the refinancing risk.
According to Central Bank of Kenya ,the depleting foreign reserves that caused pressure to the shilling was partly attributed by misunderstanding among foreign investors on the payment of the Eurobond debt set to mature in June 2024.
CBK Governor Kamau Thugge had previously explained that foreign investors were reluctant to invest in the country due to uncertainty about Eurobond repayment as they questioned whether there will be enough foreign exchange.
He exuded confidence that engagements between Kenya and foreign investors during the annual World Bank and IMF meetings had deflated the uncertainty on the economy as interest rates on a Eurobond dropped from 20 per cent to 14.2 per cent within days.
“The interest rates dropped because there was a better understanding by foreign investors. So that is one window of where the foreign exchange can come in through portfolio because these people are now satisfied that the economy better than other economies,” Thugge noted.
A weak local currency means Kenya requires more shillings to pay back the same amount of debt, translating into higher foreign loan repayment costs.
By the end of January 2023, slightly more than 51.2 per cent of Kenya’s Sh9.18 trillion public debt constituted external public debt.