With Kenya’s public debt spiralling to an all time high of Sh4.59 trillion by the 4th quarter of 2017, and with the government of Kenya struggling to service the debts, Jubilee administration is on course launch a second Eurobond and spend it’s proceeds on refinancing fast-maturing debt saying the move will ease pressure on domestic revenue.
According to media reports, the Kenya government is seeking proposals from banks about a possible $2 billion Eurobond offering in the first quarter of 2018,
Concerns on Kenya’s debt servicing ability were brought to the fore when the National Treasury sought an extension on the two- year $800 million syndicated loan which was maturing in October 2017.
In June 2014, the country floated a $2 billion Eurobond in two tranches of $1.5 billion over 10 years and a five-year $500 million bond whose proceeds it deposited in JPMorgan Chase, New York.
Kenya’s Finance Ministry knows that its cash-strapped treasury faces a huge task in raising funds to pay off the $500 million remittance due next year for the five-year tranche of the Eurobond. This money has to be paid even while raising funds to finance a larger recurrent and development expenditure bill amid serious difficulties in meeting the tax revenue target.
However, keen observers of Kenyan economy observed that the country is technically caught in a humongous debt trap because the Eurobond earnings were not invested in projects that earn revenues to pay off debts.
Kenya is over borrowed not so much that the ‘projects’ targeted required those amounts, rather that there was also the intent of skimming the money and pocketing the loot by the top government honchos.
At the same time, Auditor-General Edward Ouko has queried the whereabouts of Sh215.5 billion that Kenya borrowed by way of a Eurobond, saying its receipt, spending and accountability are still to be ascertained.
According to sources familiar with Eurobond transactions, Kenya’s love affair with Eurobond remains a matter of personal enrichment as the proceeds are mostly used to pile up bank accounts of top government officials and the impending Eurobond fundraising is not exceptional.
Apart from that, Kenya put the borrowed funds to none productive investments that on their own cannot generate the returns to repay the loans when they fall due.
The debt trap means, either Kenya raise taxes (and we are reaching our limits already) or the country borrows to pay debt. Kenya is not in a deep crisis as yet, but is headed for economic disaster unless the Jubilee administration takes concrete steps to forestall an economic meltdown.