Use Eurobond funds for intended purpose
By Editorial.Team, April 25, 2023As Kenya plans to raise up to $2 billion from the international market in the next financial year to repay a 10-year Eurobond that is maturing in June 2024, care must be taken to ensure the funds will be used for their intended purpose.
Usually, Eurobonds are raised to finance expenditures such as infrastructure development, social welfare programmes and other key projects.
They are unique bonds since they are denominated in a foreign currency, usually, US dollars, which means that they are not subject to the same interest rate and inflation risks as domestic borrowing. Kenya has been in the market for a while having issued Eurobonds since 2014, with the most recent issuance being in 2019, when $2.1 billion was raised from the international markets.
Unfortunately, the issuance coincided with Kenya sliding into a debt trap since 2014 after it was forced to issue the $2 billion Eurobond to pay off a $600 million syndicated loan underwritten by Citigroup, Standard Chartered and Standard Bank. Difficulties in tapping external debt saw Kenya keep off the international market for funds last year, forcing Treasury to bank on forex reserves to meet most of its external debt obligations.
Attempts to raise $1 billion through a Eurobond issue for budgetary support last year collapsed over cost concerns, leading to more than Sh900 billion in pending bills which have now come to haunt the economy. Amid a biting cash crunch, right now Kenya has been having trouble paying salaries to civil servants, a high cost of living, layoffs, stagnating exports, low investments and high interest.
But despite the government being broke, it is expected that these funds will still be used to fund the intended purpose. Should the proceeds from Eurobond issuance be used for any unintended purposes, or the borrowing process lacks transparency and accountability, then Kenya will find itself in a bigger financial mess.
Treasury must ensure that this Eurobond issue does not lead the country to inquiries. Treasury must mitigate such risks, by having a sound debt management strategy in place, and above all, ensuring that funds raised from Eurobond issuances are effectively and efficiently utilised.
This can only happen if it set up strong governance and transparency mechanisms to ensure that the borrowing process is transparent and accountable to the letter and spirit of the gazetted documents.