Kenya will issue its debut $500 million (Sh64.5 billion) green sovereign bond before the close of the current financial year in June with the help of the World Bank.
The Central Bank of Kenya (CBK) says that the planned issuance of the green bond is still part of the external financing pipeline earmarked for execution before the close of the current financial year in June.
A Sovereign Green Bond refers to a government fundraiser that seeks to raise money for projects that promote environmental sustainability such as renewable energy, clean transportation and green housing.
‘The Sustainability Linked bond is part and parcel of the Development Policy Operation (DPO) because the World Bank is helping us with it,’ CBK Governor, Dr Kamau Thugge, told the the Business Daily on the sidelines of the Spring Meetings in Washington DC.
‘Obviously there has been some delay but it is certainly not off the table and as we make progress on the DPO we also expect to be making progress on the Sustainability Linked bond.’
Kenya had earlier planned to issue the green bond in March but ended up prioritising smoothing out its debt maturity profile by issuing a fresh $2.25 billion (Sh290.4 billion) Eurobond in February.
This allowed it to buy back $415.0 Million (Sh53.6 billion) worth of Eurobond, which were maturing in 2028 and 2032.
If successful, Kenya will be joining nations like Nigeria which issued Africa’s first Sovereign Green Bond in December 2017 raising $29.7 million and Egypt which raised $750.0 million in September 2020.
Issuance of green bonds has been identified as part of Kenya’s long-term strategy of diversifying funding sources to meet revenue shortfalls without piling too much pressure on the real economy through high domestic borrowing.
‘On the external end, the target is a mix of concessional financing and new instruments such as Sustainability Linked Bonds. The government will explore innovative financing options such as sustainability linked bonds, diaspora bonds, domestic retailbonds, debt swaps, Samurai and Panda bonds,’ the Medium-term Debt Strategy 2026/27 – 2028/29 states.
Kenya faces mounting pressure for unlocking new sources of external financing after the latest round of talks with the International Monetary Fund (IMF) for a new programme and financing in Washington DC were met with push back for expenditure rationalization.
Supplementary Budget I 2025/26 pushed the current financial year’s fiscal deficit to Sh1.3 trillion from Sh923.2 billion, significantly eroding Kenya’s chances of inking a new deal with the IMF.
‘On the status of talks for a new programme, we continue to have discussions with the government of Kenya. We have pointed out to the government that there needs to be a path toward credible fiscal consolidation and that is one of the things that we would like to see for discussions on a new programme with Kenya to advance,’ IMF Africa Director, Abebe Selassie, told the Business Daily.
Successful issuance of a dollar based green bond will strengthen Kenya’s hard currency inflows at a time when the government has been aggressively building buffers to provide a cushion against shocks such as those stemming from the war in the Middle East.
Kenya’s stock of foreign exchange reserves stands at $13.3 billion (Sh1.7 trillion) translating to 5.6 months of import cover.
‘Over the last two years we have been able to build our reserves to a fairly sizeable level. It’s important to look at what has happened with the exchange rate,’ Dr. Thugge says.
‘The reason why we built these reserves was to have a very orderly depreciation in the event of a shock. When this crisis happened, the Shilling was at about 129 and it smoothly went up to 130. The ceasefire was announced and it has since retraced its path back.’
Kenya now hopes that strong hard currency inflows including $1.9 billion (Sh245.3 billion) from the government partial divestiture from Safaricom Plc, at least $750.0 million (Sh96.2 billion) worth of World Bank financing and $500.0 million (Sh64.5 billion) worth of Green Bond proceeds will bolster its foreign exchange reserves and stave of rising pressures.