Kenya is set to receive a combined Sh43.3 billion ($335 million) in funding from the African Development Bank (AfDB) and a Samurai loan deal reached last year, signalling diversification in the country’s external debt sources. The funds are expected before June 30, 2026.
The two facilities will complement other projected external disbursements in the cycle, including a Sh96.9 billion ($750 million) loan from the World Bank and Sh64.6 billion ($500 million) from a sustainability-linked bond.
The inflows will help Kenya meet its external borrowing target of Sh225.8 billion for the fiscal year ending June 30, easing pressure on domestic debt mobilisation, where net domestic borrowing is estimated at a high Sh998.6 billion.
The issuance of the sustainability-linked loan is pegged on the adoption of a climate financing framework, while disbursements from the AfDB are contingent on the release of funding from the World Bank.
‘On the Samurai, we have progressed significantly and are nearing the drawdown, which we expect before the end of the financial year,’ said National Treasury Cabinet Secretary John Mbadi.
‘We are also likely to receive funds from the sustainability-linked bond (SLB), which is tied to this DPO, and finally, the AfDB, which is waiting for us to complete these processes. These are the remaining drawdowns in terms of external financing, and I’m sure that before June we should have completed them.’
Debt mix
Kenya tapped Sh21.9 billion ($169.42 million) in Samurai financing from Japan in August last year, its first such facility, with proceeds earmarked for the local motor vehicle assembly and energy sectors.
Samurai financing refers to debt denominated in Japanese yen and subject to Japanese regulations.
Kenya has long floated the idea of Samurai financing or a Samurai bond to diversify its external borrowing away from US dollar-denominated instruments.
The disbursement from Japan, however, is not a Samurai bond, as it was not raised from the market but is instead a yen-denominated loan targeted at specific projects.
Kenya has also previously considered issuing Shariah and Panda bonds, the former being a Shariah-compliant bond issued on global markets, and the latter a yuan-denominated instrument.
The shift towards non-dollar currency borrowing reflects efforts by the government to mitigate foreign exchange pressures, with the Japanese yen and Chinese yuan seen as more stable compared to the US dollar or the British pound.
Green push
Kenya is seeking to unlock Sh96.9 billion ($750 million) from the World Bank’s Development Policy Operations (DPO) upon clearing three remaining conditions, which would account for the largest share of new external borrowing.
The World Bank is also supporting Kenya in issuing the sustainability-linked bond.
The SLB, also referred to as a sovereign green bond, is a government instrument aimed at raising funds for environmentally sustainable projects such as renewable energy, clean transport 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,’ Central Bank of Kenya Governor Kamau Thugge told the Business Daily on the sidelines of the IMF/World Bank Spring Meetings in Washington, DC, last week.
Kenya will join countries such as Nigeria, which issued Africa’s first sovereign green bond in December 2017.