The government of Kenya has arranged for a Eurobond to be issued very soon. The preparation of the offering circular; which is a summary of the bond prospectus for issuing to individuals and stockbrokers when marketing the Eurobond has been finalized. The roadshow to market the Eurobond is set to begin from the end of February as stated by sources from the treasury.
A Eurobond is an international bond issued in Europe or in any other country outside the country in whose currency the bond is valued. Most countries and multinational corporations prefer Eurobonds to finance their budget deficits and their long-term investment projects due to the favorable interest rates that come with the Eurobonds. Borrowing locally can be more expensive as compared to borrowing internationally; and therefore to cut down on the cost of borrowing for the government, borrowing internationally is usually the best option.
The Kenyan government seeks to raise $2 billion from the Eurobond equivalent to about Ksh. 172 billion. The money shall be used to partly bridge the budget deficit of Ksh. 330 billion and payoff the $600 million Eurobond issued in 2012 by the government. The government is bargaining on the current political stability, discovery of oil in northern Kenya and its economic development agenda to get favorable interest rates for the Eurobond.
The Kenyan government however faces a risk of getting high interest rates if the US tapers its monthly bond purchase as part of its stimulant package. These bonds offer cheap sources of finance for investors to invest elsewhere; and the tapering of the programme could reduce liquidity in the market and thus raise the interest rates.
The current Kenyan government debt stands at about Ksh. 2 trillion which is about 56% of the GDP. How to repay this debt remains to be the greatest dilemma for our economic policy makers and policy implementers.