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Civil society condemns move on Eurobond

National
 Treasury Cabinet Secretary Njuguna Ndung'u. [Edward Kiplimo, Standard]

Civil society organisations have criticized the government's move to buy back Eurobond with another Eurobond at a higher interest rate of 10.7 per cent.

The organisations, under the banner Okoa Uchumi, called for critical evaluation of the government's decision to issue a new $1.5 billion Eurobond to buy back part of the $ 2.0 billion Eurobond payout due in June 2024.

The organisations include the African Forum on Debt and Development (Afrodad), The Institute for Social Accountability (Tisa), Crawn Trust and the Kenya Human Rights Commission (KHRC).

Others are Transparency International Kenya, ActionAid International Kenya, Christian Aid Kenya and Inuka Sisi.

While issuing a statement in Nairobi, Diana Gichengo, the national coordinator of Tisa, said the economic backdrop against which the decision was made, raises questions about its prudence.

"With Kenya's debt-to-GDP ratio at 70 per cent and the country struggling to meet its revenue targets to avoid defaulting on the current Eurobond payout due in June 2024, the move to issue a new Eurobond appears to be a short-term fix to a more profound economic challenge," she said.

Shem Joshua, the Sovereign Debt Management Policy Lead at Afrodad, faulted the move, saying it does not communicate economic stability but rather reflects the current state of economic despair and distress the country is in.

"This new issuance's higher interest rate translates to an annual interest payment obligation of $146.25 million from the $ 137.5 million paid on the 2014 Eurobond, translating to an increase of $ 8.75 million. This would likely result in increased cost of debt servicing for the country," Shem said. 

He criticised Parliament and the Executive finding it okay to repay the Eurobond whose acquisition and utility have been questioned by the independent fiscal institutions.

Transparency International Kenya Executive Director Sheila Masinde wondered why the government is only concerned with the return of private investors and the refinancing and repayment.

She said the government should instead look at the bigger picture of the overall debt burden that is compounded by the pricing of the new Eurobond.

"We wonder when the Public Finance Act section 15 (2) b on fiscal responsibilities that requires that in the medium term, all borrowing by the government be only for development initiatives and not recurrent is applicable. We also wonder when the law changed to allow for significant medium-term borrowing for debt servicing," she said.

Masinde stated the continued acquisition of debt on political and economic whims instead of legal and constitutional foundation is concerning for a sovereign state.

"We are a country that is governed by the rule of law."

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