Government Faces Eurobond Dilemma: Mounting Pressure for Increased Payments
The government might need to allocate additional funds when settling the upcoming Eurobond installment due in July 2024, as the Shilling has depreciated.
The loan repayment is slated for the final week of June 2024, and there is a possibility of increased costs for the government due to the anticipated further depreciation of the Kenyan Shilling.
As per analysts interviewed by Bloomberg, it is anticipated that the Kenyan Shilling will depreciate and be valued at Ksh210 about the US dollar by the conclusion of 2024.
This slide will impact the ultimate payment of both interest and principal on the Eurobond that is set to mature, and that was acquired in 2014.
In December 2023, the government reimbursed Ksh10.8 billion, significantly less than the anticipated repayment of Ksh150 billion.
Further, Treasury Cabinet Secretary Njuguna Ndung’u stated “The final interest payment on this Eurobond is scheduled for the last week of June 2024, alongside the repayment of the principal amount of $2 billion (about KSh312.1 billion at current exchange rates).”
At present, the loan stands at Ksh325 billion, considering the exchange rate observed on Monday, when the US dollar was traded at 162.29 Kenyan Shillings, marking a historical low.
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Additionally, according to Timothy Kiarie a financial expert who spoke to Bloomberg, “The government will have to chip in more in terms of repaying that loan.”
“Given that fundamentals haven’t changed much and that the Central Bank of Kenya is still struggling with dollar reserves, a widespread panic could accelerate the loss on the Kenya Shilling,” he added.
Aside from the declining forecasts for the Shilling in debt analysis, the nation’s imports are poised to face difficulties due to traders encountering more challenges arising from elevated exchange rates.
As a result of this, the Shilling is now characterized as the second least successful currency in Africa.
In December 2023, Treasury Cabinet Secretary Njuguna Ndung’u announced that following the loan repayment, the government was progressing as planned and emphasized that the punctual repayment was a favorable indication for investors.
“The timely settlement of interest payments on the Eurobond has not only sent a positive signal to investors but has also resulted in a reduction in yields of Kenya’s Eurobonds in the global financial markets,” CS Ndung’u stated.
Government Faces Eurobond Dilemma: Mounting Pressure for Increased Payments