Kenya’s domestic debt refinancing risks rise as more bonds mature

The government faces increased refinancing or roll over risks as more domestic bonds mature within the next year than in the past year, the ministry of finance said.

The International Monetary Fund bumped up the East African nation’s debt distress risk to moderate from low last October, citing rising external commercial borrowing and growing interest payments on public debt.

The maturing of domestic debt is due to shorten, with 43 percent of the debt maturing in less than a year, up from 38 percent the previous year, the Treasury said in a debt management strategy document seen by Reuters on Monday.

This is after it was sent to parliament by the Treasury on Thursday last week.

Market conditions had not been “supportive” of the government’s aim of lengthening the maturity profile of the debt through issuance of longer-dated bonds in the 2017/18 (July-June) financial year, the ministry said.

The 2019 local debt maturities account for $10.37 billion out of the total outstanding local debt of $24.21 billion, the ministry said in the document.

“Whereas debt redemptions are large in 2019, it is projected that over the medium term … the level of redemptions will decline,” it said.

Kenya’s domestic debt stands at 24.7 percent of GDP, roughly half of the total public debt of 50.3 percent of annual economic output, with the balance being made up of external financing from creditors such as the World Bank and commercial lenders.

Slightly over two thirds of the external debt was in the U.S. dollar, the ministry of finance said, adding it would seek to cut that exposure by issuing debt in other currencies.

The government planned to diversify its sources of financing through private placement of debt in local and foreign currencies as well as issuance of Islamic bonds, green bonds and diaspora bonds, the Treasury said in the document.