Debt crisis: Kenya secures another Sh193.8 billion Eurobond

Treasury CS John Mbadi at Parliament Buildings. [File, Standard]

Kenya is borrowing billions of dollars to pay off old debts in a high-stakes financial strategy that economists warn may only postpone a deeper fiscal crisis while increasing the nation's overall debt burden.  

The National Treasury on Friday announced a successful $1.5 billion (Sh193.5 billion) Eurobond issue, celebrating it as a demonstration of "managing debt more wisely."

The funds will partially pay off a $1 billion (Sh129 billion) Eurobond maturing in 2028—the third such "liability management operation" since January. 

The new bonds carry interest rates of between 7.875 per cent and 8.8 per cent, significantly higher than what Kenya paid for earlier Eurobonds.

“The government is pleased to announce that it has successfully raised $1.5 billion (Sh193.8 billion) from international investors and at the same time paid off $1 billion (Sh129 billion) of the 2028 Eurobond ahead of schedule,” announced Treasury Principal Secretary Chris Kiptoo.

“This is the third such transaction since 2024, and it shows the government's firm commitment to managing debt more wisely, paying off loans on time, and protecting Kenyans from sudden repayment shocks.” 

Treasury said the money was raised in two parts, including a seven-year loan at an interest rate of 7.875 per cent and a 12-year loan at 8.8 per cent.

Treasury reckons this gave Kenya “a better rate of 8.7 per cent, which is one per cent lower than what the country would have paid at the start of the year.” 

“By securing this deal, the Government has also smoothened and lengthened loan repayments, giving Kenya more breathing space in managing its finances,” said Kiptoo. 

“The response from investors was very strong. The Government asked for USD 1.5 billion, but investors offered more than $7.5 billion, five times the amount needed. Most of this support came from trusted international fund managers in the United States and the United Kingdom, showing that the world has renewed confidence in Kenya's economy.”

He argued that “this success means Kenya will spend less on interest, ease pressure on taxpayers, and keep the economy stable while creating room to fund development priorities such as roads, health, and education.” 

But analysts said behind the triumphant announcement lies an uncomfortable truth. 

Kenya's public debt has surged to a record Sh11.73 trillion, having grown by Sh3 trillion since President William Ruto took office in 2022, according to the Controller of Budget Margaret Nyakang'o.

"The fundamental math is concerning," said Ian Njoroge, a Nairobi-based independent economist.

"You're essentially taking expensive new debt to service old debt, which doesn't reduce your debt stock—it just reschedules the problem, often at higher overall cost."

While the Treasury emphasises this is better than rates available earlier this year, it still adds to a debt servicing burden that consumed Sh1.59 trillion last financial year—eating up 91 per cent of the budget allocated for public debt.

The strategy has caught the attention of international ratings agencies. Moody's recently warned that Kenya faces "sharply high borrowing costs" that are worsening fiscal strains.

The agency noted that despite slightly easier international market conditions, borrowing costs remain elevated at about 500 basis points over US Treasuries. 

Meanwhile, the Treasury has breached its own borrowing guidelines, with domestic debt now comprising 54 per cent of the total—exceeding the recommended 50 per cent limit—and costing Sh678.25 billion in interest payments last year alone. 

The limited options are pushing Kenya back to the International Monetary Fund, just months after a previous $2.3 billion (296.7 billion) programme collapsed over unmet targets. 

An IMF team is currently in Nairobi discussing a new bailout that would inevitably come with strict conditions, including spending cuts and potential tax increases. 

"The debt swaps provide temporary liquidity relief, but they don't address the core problem of needing to generate primary surpluses," explained Njoroge. 

"Without significant fiscal reforms, Kenya is simply building a larger debt pyramid that will become harder to sustain." 

With local bond maturities set to surge to Sh822 billion next year, according to LSEG data, the government's room for financial engineering is narrowing. The question now is whether Kenya is buying time for economic recovery or simply delaying an inevitable reckoning with its debt demons.