In brief
- The Government of Kenya sold USD 1.5bn KENINT 2036 on 26 February 2025 with a settlement date of 5 March 2025. The yield settled at 9.95% having tightened 55bps from the initial price talk. Like KENINT 2031 that was issued last year, KENINT 2036 was discounted with an issue price of 97.195% given its coupon rate of 9.50%.
- The UAE commercial financing has been well telegraphed in the fiscal year and the dual-tranche USD 1.5bn bond will have a similar 8.25% coupon rate on the 2032 and 2037 maturities. Interestingly, this private placement bond will be structured as a Musharakah Sukuk, suggesting that the authorities may have viable projects in the pipeline.
- With these recent developments around commercial financing in FY25, we shift our base case to a no-successor IMF programme from our earlier expectation of a non-funded IMF programme. In line with our expectation, the 2025 Budget Policy Statement (BPS) tabled in Parliament laid bare the challenges surrounding the ninth and final review, outlining a zero-disbursement scenario.
- The National Treasury tabled the second FY25 Supplementary Budget Estimates in Parliament on 18 February 2025 and is currently undergoing the necessary legislative approval process. Spending by the national government is expected to increase by KES 85.9bn, equivalent to 0.5% of GDP. Notably, guaranteed debt was increased by KES 19.7bn which we suspect to be the reconversion of the initial Kenya Airways debt service obligations from the main public debt and back to guaranteed debt.
- Weak revenue outturn in FY25 has amplified the fiscal constraints facing the authorities. We were disappointed by the authorities’ guidance of KES 44.0bn as the target collection from the Tax Laws (Amendment) and Tax Procedures (Amendment) laws that were passed in December 2024 which was significantly lower than the initial target of KES 175.0bn. We project FY25 ordinary revenue will fall short by KES 76.7bn or 3.0% lower than the revised target.
- We revise our FY25 fiscal deficit projection from 4.5% to 5.1% of GDP. With the outsized external financing, we estimate a much lower net domestic financing requirement of KES 449.6bn against the estimated KES 595.1bn in the 2025 Budget Policy Statement.
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