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Treasury CS makes radical shift by returning to Kibaki-era loans

Why President Ruto's government has walked away from the international bond market 10 years after the 1st Eurobond

Treasury Cabinet Secretary Prof Njuguna Ndungu speaking during a media briefing

President William Ruto’s government has shifted from borrowing from the international bond market, reverting to Kibaki-era financing from bilateral and multi-lateral partners.

Treasury CS Njuguna Ndungu explained on Tuesday, November 21, that the shift was due to uncertainties in the international bond market.

This comes nearly 10 years after the country floated its first Eurobond on the international market in 2014 and raised $2 billion (Sh300 billion), the largest international bond in Sub-Saharan Africa at the time.

From the proceeds, $600 million (Sh91 billion) was used to repay a syndicated loan contracted in 2012. The remaining funds were to substitute for domestic financing of energy and infrastructure projects.

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“In light of the uncertainty surrounding access to global bond markets, the government's strategy has shifted to focus on seeking out concessional funding from the multilateral lenders like IMF and the World Bank and bilateral development partners,” read the statement in part.

He added that the government is also stepping up efforts to improve the macroeconomic environment and carrying out the necessary structural reforms.

“Kenya will access commercial financing when global market conditions improve,” CS Njuguna stated.

During his State of the Nation Address in Parliament in November, President Ruto announced that the country is planning to pay the first $300 million (Sh45 billion) instalment of the maiden $2 billion (Sh300 billion) Eurobond.

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"I can now confirm ... with confidence that we will and we shall pay the debt that has become a source of much concern to citizens and markets," Ruto said.

The government was initially considering floating another Eurobond to finance the repayment but Treasury’s recent shift in policy means that this plan was dropped.

Treasury had hired Citi Bank and Standard Bank to access the international bond market and advise on the possibilities. It is on this advice that Kenya has chosen to walk away from the international bond market.

The country’s recent efforts to meet its debt obligations by raising taxes have unlocked a commitment of $12 billion (Sh1.8 trillion) by the World Bank and $4.5 billion (Sh657 billion) by the International Monetary Fund.

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Concessional loans refer to loans with favourable terms and conditions that are extended by a lender, often a government or international organization, to a borrower, typically a developing or economically challenged country.

These loans are considered concessional because they come with lower interest rates, longer repayment periods, and more flexible terms compared to standard commercial loans.

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On the other hand, International Bonds are debt securities issued by governments to raise capital from the financial markets.

Interest rates are determined by market forces, reflecting the creditworthiness of the issuer. Riskier countries may face higher interest rates, which come with increased default risk.

Concessional loans often have extended repayment periods and grace periods, allowing Kenya the flexibility in meeting its repayment obligations.

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