Global bank Citi has recommended that Kenya secure a new International Monetary Fund (IMF) standby agreement to facilitate cheaper access to international capital markets through a Eurobond issuance, citing fiscal pressures and market dynamics.
Citi Africa chief economist David Cowan emphasized that while Kenya could issue a Eurobond without IMF backing, the cost would be significantly higher. He stated that an IMF facility would reduce risk ratings and attract more lenders due to enhanced fiscal transparency and external oversight.
"The market values an IMF deal as it brings increased scrutiny of fiscal numbers and provides an external anchor for fiscal consolidation," Cowan explained. He noted that Kenya’s 2019 fiscal deficit of Sh635.5 billion, partially financed by Sh321.5 billion in external borrowing, underscores the urgency of securing favorable financing terms.
A key condition for a new IMF agreement, according to Cowan, is the removal of the bank loan rate cap. This would require the president to mobilize political support in parliament, as the current regulatory framework hinders fiscal flexibility.
Kenya’s Treasury Cabinet Secretary Henry Rotich has outlined plans to rebalance borrowing toward domestic sources, aiming for a 62% domestic and 38% external split. However, external borrowing progress remains stalled, with officials exploring a $1 billion syndicated loan to address liquidity needs.
