Sh110bn IMF loan eases President Ruto’s Eurobond pressure

The approval of Sh110.6 billion ($684.7 million) loan to Kenya by the International Monetary Fund (IMF) on Thursday is set to lower the heat on Eurobond repayment.

The new funds, which are expected to hit the accounts of the Central Bank of Kenya (CBK) immediately are part of the Sh152 billion ($941.2 million) from the augmentation/expansion of resources under the fund’s multi-year arrangement with Kenya.

Kenya lobbied for additional resources from the IMF last year, citing heightened balance of payment needs ahead of Eurobond maturity in June in the wake of difficulties the country is facing in accessing alternative funding from the international capital markets.

Read: IMF approves Sh109.8 billion new funding to Kenya

The IMF has acknowledged the pressure in approving the additional funds to Kenya, noting the government has fewer options to fully refinance Eurobond by June 24.

“Urgent balance of payment needs have emerged, primarily due to the Sh323.2 billion ($2 billion) Eurobond maturing in June 2024 as prior expectation of a full roll-over via a bond issuing at a reasonable cost is unlikely to materialise under the prevailing global bond market conditions,” the IMF said Thursday.

Besides leveraging on IMF funding, the government has been seeking additional concessional funding from other sources including the World Bank and syndicated loans.

The National Treasury has, for instance, disclosed that it expects Sh15.4 billion ($88 million) from the African Development Bank while a syndicated loan is expected from the Trade and Development Bank.

The expansion of funding has seen the triggering of exceptional access to the general resource allocation at the fund and policy safeguards for high combined credit.

Kenya has struggled to return to the international capital markets.

Plans to issue a Eurobond by June 2022 were cancelled as general market conditions became unfavourable as global interest rates rose along with the onset of the Russia-Ukraine War.

The National Treasury has been stepping up efforts towards securing the Eurobond’s refinancing and selected Citi and Standard banks as lead managers last year to explore the scope of issuing in the Eurobond market at a reasonable cost.

Moreover, the government considered and planned a partial early buyback of the bondholders last year, but the move failed to materialise amid concerns by credit rating agencies that the buyback could be treated as a default event.

The early buyback was expected to break up the outsized maturity into smaller bits, spreading out payments through to June 27 with the Central Bank of Kenya (CBK) previously hinting at the use of forex reserves to clear the balance left behind after the utilisation of concessional funds.

Read: Volatility hits Kenya’s $2bn Eurobond close to maturity

IMF’s multi-year programme with Kenya under the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) and the Resilience and Sustainability Facility (RSF) arrangements is expected to run until April next year.

The arrangements are expected to support the government’s efforts to sustain macroeconomic stability, strengthen policy frameworks, withstand external shocks, push forward key reforms and promote inclusive and green growth.

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