Debt Crisis Worries as $2 Billion Eurobond Matures

The uncertainty surrounding Kenya’s $2 billion (Sh294 billion) Eurobond redemption, which is slated to mature in June 2024, has put a shadow over the country’s capacity to service its debt.

Conflicting statements from top government officials, including President William Ruto, National Treasury Cabinet Secretary Ndung’u, and Central Bank Governor Kamau Thugge, have added to the anxiety.

Ruto made an unexpected announcement in June of this year, indicating that Kenya would repurchase half of the Eurobond before the conclusion of the current fiscal year.

Investors reacted to his comments with a mix of hope and skepticism, as they awaited more specifics on the government’s plan to meet the coming debt obligation.

Ndung’u, on the other hand, took a different approach in July, showing his doubts regarding the timing of the Eurobond repurchase. He went on to say that a list of institutions had been shortlisted as potential arrangers to refinance the Eurobond, signaling a change away from President Ruto’s earlier commitment.

Ndung’u also announced that he would keep the public updated on the status of the refinancing initiatives. Thugge has contributed to the confusion by telling Bloomberg that the government planned to accumulate reserves and eventually repay bondholders.

“Our strategy is to build enough national reserves within the central bank so that by the time the bond matures, we can pay it back without going to the capital markets,” he told Bloomberg TV.

President Willie Ruto’s announcement that the government will purchase back the Eurobond was strongly rebuffed by the rating agency Moody’s, which stated that it would view the action as a default.

High-ranking government officials’ contradictory pronouncements have conveyed contradicting messages to the financial market, confusing investors and experts. Concerns over Kenya’s creditworthiness and capacity to fulfill its financial commitments have been raised due to the lack of transparency surrounding the country’s strategy for dealing with the approaching Eurobond maturity.

Risk of a rise in Eurobond yields is one of the possible effects of this uncertainty. Investors may seek higher yields in order to make up for the higher risk associated with Kenyan debt as they try to make sense of the government’s inconsistent messaging. In turn, this might result in greater borrowing costs for Kenya in the future, making it harder for the nation to access favorable international financial markets.