Kenya Lawmakers Approve Plan to Issue Debt Swaps to Fund Budget

David Herbling
·2 min read

(Bloomberg) -- Kenyan lawmakers approved the Treasury’s plans to offer debt-for-nature and food-security swaps to bolster the nation’s finances for its next fiscal year starting July 1.

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The East African nation is in talks with the United Nations and development partners to structure the debt swaps, according to a Treasury report that was published last month. The report didn’t provide details on how much Kenya plans to raise via these instruments and how they would work.

“While these swaps have been successful in other countries, there is a need for full disclosure of this type of financing, including, but not limited to, community displacement and the risks associated with them,” the National Assembly’s public debt & privatization committee said in a separate report.

Both reports were adopted by lawmakers on Wednesday.

Debt-for-nature swaps have been executed by countries including Belize, Ecuador and Gabon, in which they refinanced existing debt in exchange for commitments to protect their marine environment. Barbados is considering another deal, but this time with proceeds earmarked for the upgrade of a sewage treatment plant in order to cut emissions and improve water quality.

Kenya, which is classified by the International Monetary Fund as being at high risk of debt distress, is seeking to diversify its sources of borrowing to include sustainability linked bonds, samurai bonds, and diaspora bonds. It has also signed up to a $4.43 billion IMF program to reduce its debt vulnerabilities.

In February, it tapped international debt markets after years of being priced out of them, encouraged by successful eurobond sales from Ivory Coast and Benin earlier this year. It repurchased $1.44 billion of its $2 billion eurobonds due in June, with the issuance of new dollar bonds, easing investor concerns on how it would settle the bullet maturity.

Kenya’s public debt stood at 11.25 trillion shillings ($78.7 billion), or 67.2% of gross domestic product at end-January in present value terms, above its self-imposed fiscal anchor of 55%.

Other Proposals Approved Include:

  • Gross external borrowings in the year through June 2025 of 670 billion shillings comprising 151 billion shillings in commercial financing, project loans of 308 billion shillings and program loans of 210.5 billion shillings.

  • Budget deficit target of 3.9% of gross domestic product for year through June 2025 and 3.3% for both 2025-26 and 2026-27.

--With assistance from Alister Bull.

(Updates story with approval of debt swaps in paragraph 1)

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