Treasury CS Ukur Yatani now goes for Ksh.124 billion Eurobond

National Treasury Cabinet Secretary Ukur Yatani is set to make his debut in the international capital markets with a Ksh.123.5 billion Eurobond in the pipeline despite having stayed off external commercial loans in his tenure so far. This is after a more than 5,000 per cent increase in the share of planned commercial financing to June as disclosed in the final Budget Policy Statement (BPS) published at the end of the week. The Treasury has now set the limit on external commercial financing at Ksh.350.5 billion in the year ending in June from a low Ksh.6.2 billion. This will be Kenya’s fourth Eurobond in just six years and the first under the administration of CS Yatani who previously sought to stay off external commercial financing in a switch to concessional and semi concessional funding On July 24, 2019, Ukur Yatani was appointed as the interim exchequer CS replacing Henry Rotich who was indicted on corruption charges. Yatani, who would later be confirmed to the post in January last year, moved to re-shape matters at Treasury to include fiscal prudence and a switch to cheaper financing sources. The CS trailed his energies to budget cuts trimming out allocations to foreign travel and even tea budgets inside Ministries and State Departments (MDAs). Fiscal consolidation is nevertheless yet to bear fruit pulled down in part by the COVID-19 pandemic which left the exchequer with shallow tax revenues. During his first year in charge, CS Yatani managed to stay off external commercial loans in a period that saw the re-ignition of cheap funding from multilateral partners including the World Bank and the IMF. However, CS Yatani has seemingly exhausted cheap funding sources with a second sovereign bond estimated at Ksh.124.3 billion in the plans for next year. Kenya made its inaugural entry into the Eurobond market in June 2014 raising Ksh.219 billion ($2 billion) on the debut issue. The country would subsequently snap up Ksh.82.1 billion ($750 million) from a tap sale in the same year before adding two more Eurobond issues in 2018 and 2019 which totaled Ksh.449 billion ($4.1 billion). The return to external commercial financing is expected to lift Kenya’s debt servicing costs with the loans incurring a higher interest cost in contrast to concessional financing. An analysis of the final Budget Policy Statement (BPS) published earlier this week reveals the return to commercial financing. According to the 2021 BPS, semi-concessional loans have dried up to zero from a planned Ksh.124.1 billion leaving a gaping hole in the financing of the budget to June. Further, the exchequer has trimmed its expected disbursement from the African Development Bank (AfDB) to Ksh.13.8 billion from a projected Ksh.50 billion. The National Treasury is still expectant of tapping multilateral loans in the next four months to include Ksh.78.8 billion from the IMF Rapid Credit Facility (RCF) and Ksh.82.5 billion from the World Bank Development Policy Operations (DPO). With none of these loans yet to be disbursed, Kenyans can expect multiple announcements of new external loans before the end of the fiscal year on June 30. Kenya’s unprecedented return to the Eurobond market is against its participation in the Debt Service Suspension Initiative (DSSI) whose terms included a break from external commercial financing. Nevertheless, the DSSI initiative allows exemption from which countries such as the Ivory Coast have returned to the international capital markets in the aftermath of joining the program. Kenya’s increased borrowing tendencies are expected to leave the stock of public debt at Ksh.7.6 trillion at the end of June according to data from the National Treasury. Kenya added Ksh.1.2 trillion to its debt in just 12 months to December 2020.

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