Digging one hole to fill another? Kenya's Eurobond buyback game

Kenya’s Eurobond buyback programme swaps old debt for new borrowing, leaving the overall debt burden largely unchanged. [Courtesy]

Kenya’s much hyped Eurobond buyback programme bought the government time but failed to reduce the country’s debt burden after it was financed through fresh borrowing, leaving taxpayers exposed to growing refinancing and foreign exchange risks.

The strategy, in which the country borrowed new loans to settle old ones, is now being viewed as a trade-off in which the country only avoided immediate risks but carries permanent and more expensive risks in the form of high interest payments for years to come.

The office of the Controller of Budget (COB), in its latest report on budget implementation, said that even as the government retired more than Sh219 billion worth of Eurobonds since March 2025, the buyback amounted to swapping old loans for new ones rather than reducing the country’s overall liabilities.

The National Treasury has since March last year retired over Sh219 billion in Eurobonds, which was financed by issuing Sh195.5 billion in new Eurobonds. This, according to COB, has meant that Kenya has simply pushed its debt problems down the road rather than decisively dealing with the country’s debt problems. Despite the higher costs and possible risks of currency fluctuations in future, the move has also not yielded a reduction in the country’s overall debt burden.

The new loans are also increasing concerns over Kenya’s debt sustainability, which both critics and government insiders agree is approaching unsustainable levels.

“Kenya’s foreign bond buybacks are a tactical measure, not a permanent solution. They provide a short-term fiscal space and reassure investors, but they do not reduce the country’s overall debt stock in the long run,” said COB.

“In essence, Eurobond buybacks are a double-edged sword: they can stabilise Kenya’s debt trajectory by smoothing maturities and lowering refinancing risks, if used wisely. However, they entail the risk of costly stopgap measures if relied upon without addressing underlying fiscal imbalances.”

From March 2025 to March 2026, the government repurchased three Eurobonds with a buyback value of Sh78.32 billion (March 2025), Sh86.29 billion (October 2025) and Sh58.13 billion (February 2026). This was in addition to the first-ever Eurobond buyback in February 2024, when Kenya repurchased $1.44 billion (Sh187 billion) of its debut $2 billion (Sh260 billion) international sovereign bond.

The buybacks have, however, not reduced Kenya’s levels of indebtedness, with Treasury data showing that the stock of International Sovereign Bonds increased from Sh1.022 trillion at the beginning of the 2025/26 financial year to Sh1.379 trillion at the end of March 2026, an increase of Sh357.08 billion. It is also against a growing total public debt that stood at Sh12.8 trillion as of March, according to data by Treasury, an increase of nine per cent from Sh11.8 trillion in June last year.

Following the Treasury’s heavy presence in the Eurobond market, loans taken through Eurobond and other international sovereign bonds stood at Sh485.63 billion over the nine months to March this year, according to COB.

This accounted for 81.2 per cent of the Sh597.91 billion foreign debt that Kenya incurred over the first nine months of the current financial year. Other foreign loans included advances from multilateral institutions at Sh81.55 billion (13.6 per cent of all foreign loans) and bilateral loans at Sh26.01 billion (4.3 per cent). Sovereign bonds are the most expensive and also mature within a short period.

The Controller of Budget noted that liability management results in increased investor confidence, but also noted that it presents risks, including sustained high debt levels.

“If debt buybacks are financed by new debt, then Kenya’s debt burden remains high. The interpretation by investors may not be limited to a strong debt management strategy but may also be misinterpreted as a sign of fiscal stress if not well communicated,” said COB.

COB noted that long-term solutions lie in the government increasing revenue collections, expanding the tax base and reducing tax exemptions.

It also noted that the government needed to undertake expenditure rationalisation, including cutting unnecessary spending, but also “prioritising essential infrastructure and social spending while cutting down non-productive expenditure”.

The COB also said the government needs to live within its means by reducing fiscal deficits that push the government to rely on costly loans to plug budget holes.

The Eurobond buybacks have also made Kenya vulnerable to future shocks in the global financial market forces. More than half of the country’s external debt is denominated in US dollars, with COB noting that a shift in global economics could trigger domestic fiscal stress. 

“With 52 per cent of Kenya’s debt denominated in US dollars, any depreciation of the shilling between 2026 and 2028 may erode the actual benefits realised from the extended seven and 12-year debt maturities,” said COB.

The National Treasury has argued that liability management through Eurobond buybacks is beneficial to the country, as it reduces refinancing risk. Such is seen in the retiring part of the 2028 Eurobond, where Kenya avoided a lump-sum payment that could have otherwise strained the country’s liquidity. The extended maturities, stretching to 2032 and 2037, also spread the obligations over time, providing the country with greater fiscal flexibility. 

Treasury Cabinet Secretary John Mbadi recently said the government is pursuing other liability management initiatives that are designed to enhance overall resilience in debt management. 

“The Government is considering liability management instruments such as debt-for-food swaps and debt-for-development swaps,” said Mbadi when he presented his budget statement in Parliament mid-June.