(Bloomberg) -- Kenya plans to borrow $12.4 billion between now and June 2022 from foreign sources, the International Monetary Fund said in a report detailing terms and conditions of a separate $2.34 billion financing package approved by its board last week.

The amount includes $7.3 billion in Eurobonds, $4.8 billion in concessionary borrowing and $282 million semi-concessional loans, the IMF said in a report on its website. About $2.3 billion of the Eurobonds will be new borrowing to be spent on infrastructure projects, while $5 billion is refinancing for a Eurobond maturing in 2024 and to retire pricey syndicated loans, it said.

The external borrowing during the next 14 months amounts to about 6% to 7% of gross domestic product, according to Yvonne Mhango, head of research for sub-Saharan Africa at Renaissance Capital.

“It’s a significant amount for a country with debt that is already close to 70% of GDP, and one that is at high risk of debt distress,” she said. “The increase in domestic yields may be a factor that compelled the authorities to seek some external financing. However, we expected an increase in concessional financing to help keep financing costs moderate.”

Key Highlights:

  • “While Kenya is at high risk of debt distress and subject to zero limits on non-concessional borrowing, the authorities have requested, and staff supports, non-zero limit exceptions for project financing and debt-management operations,” according to the IMF report.
  • Some of the reforms Kenya will implement during the 38-month IMF program include broadening the tax base to grow revenue and freezing civil service recruitment.
  • Treasury also agreed to evaluate fiscal risks posed by about 20 large state-owned enterprises including Kenya Airways Plc, Kenya Railways Corp., Kenya Power and Lighting Co., Kenya Electricity Generating Co. The state will seek an independent adviser to evaluate the financial situation of its national airline and the least costly restructuring options for the company.
  • By October 2022, Kenya would have expanded reporting on public debt to cover non-guaranteed public-sector debt, including arrears.
  • It also plans to adopt e-procurement for transparency, strengthen its anti-money laundering measures, and make it mandatory for companies to declare their ownership to support anti-corruption efforts.
  • Treasury also plans to review the legal debt ceiling in the coming fiscal year to ensure it “remains consistent with program targets”
  • Ghana’s successful issuance last week signals there’s still strong appetite for high-yield sovereign credit and Kenya will likely draw interest despite deteriorating public finances, according to Irmgard Erasmus, a senior financial economist at NKC African Economics.
  • Kenya’s outstanding dollar bonds don’t offer much value, according to Erasmus, “but the global backdrop should be favorable for high-yield frontier market issuers especially non-fuel commodity exporters. Kenya is trading expensive but yield-seeking may stoke appetite for new issuance still, especially with the U.S. Fed maintaining highly accommodative stance with rate lift-off seen in mid-2023 only.”

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