Don’t misuse Eurobond proceeds, State warned

Kenya: The Government has been warned against using proceeds from the planned $2 billion (Sh174b) bond to finance its recurrent budget.

The Institute of Certified Public Accountants of Kenya (ICPAK) noted that use of the proceeds from the debut Eurobond for recurrent budget could see the country’s public debt spiral into unsustainable levels.

The accountants noted using the funds for the intended purpose such as infrastructure financing would see the economy expand and reap huge benefits.

The country plans to launch the much-hyped Sh174 billion Eurobond in the coming weeks, having started marketing it to European and American investors yesterday.

Despite the concerns by the accounts’ body, Treasury plans to use part of the proceeds of the Eurobond to repay a $600 million (Sh52 billion) syndicated loan.

The Government plans to use much of the money from the bond to finance infrastructure projects over the next financial year.

ICPAK Chairman Benson Okundi noted the two loans could up Kenya’s growing debt and with it a risk of having unsustainable debt levels.

“The debt to the Gross Domestic Product (GDP) ratio cannot be sustainable at those levels but there is hope that through the infrastructure to be put up using these funds, the economy will expand and with time,” he said. “If the money is not injected in the right areas, then there is a risk of having unsustainable debt levels,” he said on the sidelines of ICPAK’s annual general meeting in Nairobi.

Standard gauge railway

In addition to the $1.5 billion bond, the Government recently signed a Sh285 billion standard gauge railway financing deal with the Exim Bank of China.

Kenya’s foreign debt stood at Sh885 billion as of June 2013. Total borrowing stood at Sh1.9 trillion, translating to 49 per cent of the GDP. The debt from the Chinese bank and other loans taken over the last 11 months have seen the public debt load go over the Sh2 trillion, more than 50 per cent of the GDP.

Treasury expects this to come down to 43 per cent of GDP over the next two years, which will be under its target range of 45 per cent debt to GDP ratio. Okundi noted that the Eurobond would be significant in financing the country’s budget to the next financial year.