(Bloomberg) -- Kenya has dropped plans to tap international capital markets this fiscal year due to the high cost of dollar debt, according to Treasury Secretary Njuguna Ndung’u.
The East African nation will seek cheaper concessional funding instead, Ndung’u told the state-run MyGov newspaper. It will return to international debt markets “when conditions improve,” he said.
Kenya appointed Citigroup Inc. and Standard Bank Group Ltd. earlier this month to assess a return to international capital markets funding, which could include a eurobond or Islamic-finance debt. The country last issued eurobonds in 2021.
But in a change of strategy, Ndung’u now says Kenya will access loans from multilateral lenders, in particular the World Bank and the International Monetary Fund, in the fiscal year through June. It has $2 billion of eurobonds maturing in that month.
The downgrading of Kenya’s credit standing by global rating companies hurt the country’s chances to attract cheaper loans from the international market, the minister said. Global factors such as the Russia-Ukraine conflict are also to blame, he said.
Soaring yields “make the floating of a sovereign bond expensive, and, therefore, unfeasible,” Ndung’u said, according to MyGov. “Kenya wil access commercial funding when global markets conditions improve.”
The yield on Kenya’s 2024 eurobonds fell 34 basis points to 14.04% by 8:04 a.m. in London.
Kenya’s debt burden has become a focal point for investors as the country faces skyrocketing energy and food import bills, while foreign-exchange reserves at $6.7 billion cover less than four months of imports.
In February, S&P Global Ratings cut Kenya’s credit outlook from stable to negative while Moody’s Investors Service assigned Kenya a B3 with a negative outlook. Fitch Ratings in July rated Kenya at B with a negative outlook.
Last week, the IMF said it plans to increase its funding to Kenya by about a quarter to $4.43 billion. The World Bank said it would loan Kenya $12 billion in the next three years.
Those funds will be used to protect the economy from global shocks associated with drought, inflation, unpredictable international commodity prices and tighter external financing conditions, Ndung’u said.
(Corrects dates of rating actions in ninth paragraph, in story published on Nov. 28.)
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