The National Treasury building in Nairobi. FILE PHOTO | NMG
Kenya has been advised to tap the international market early for
funds to refinance the five-year Eurobond that matures next year, to
minimise the currency risk brought on by a widening fiscal deficit and
higher oil prices.
Analysts at Dyer & Blair
Investment Bank in the 2018 fixed income outlook say that taking up a
new Eurobond this year will also reduce pressure on domestic borrowing,
which could push yields even lower reducing financing costs for the
Treasury.
Kenya faces a huge task in raising funds to
pay off the $500 million due next year for the five-year tranche of the
Eurobond, while also raising funds to finance a larger recurrent and
development expenditure bill amid difficulties in meeting the tax
revenue target.
“We believe that Kenya will have to
borrow again in order to meet its Eurobond maturity in 2019 and to
finance her widening fiscal deficit,” said Dyer in the report.
“In anticipation that the currency situation is bound to get
worse, we believe that the government should tap the Eurobond markets
ahead of 2019. Further depreciation of the currency is, however, bound
to raise the cost of refinancing.”
The
government has been planning a return to the international market for
another Eurobond. The Treasury has, however, remained non-committal on
the possible time they will do so, saying they are waiting for the right
conditions before issuing the debt.
Although the
shilling has started the year on a strong footing against the dollar,
the analysts see it coming under pressure later in the year once the
full effect of the higher oil prices hit home.
Dyer
notes that the US fed could raise the Federal Reserve rate again this
year, which would reduce the amount of portfolio inflows for economies
such as Kenya’s, thus affecting the shilling negatively.
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