TLDR
- Kenya's borrowing costs remain high amid uncertainty in funding options and fiscal strategy, with local debt yields staying elevated.
- Recent interest rate cuts have slightly eased borrowing costs, but they are still near the highest levels since December 2015.
- Market concerns persist over Kenya's fiscal prospects, debt trajectory, and governability, as reflected in the high yields of Treasury notes and bills.
Kenya's borrowing costs remain near decade-high levels as uncertainty over the country's funding options and fiscal strategy continues.
Following deadly protests over tax hikes tied to International Monetary Fund (IMF) recommendations, the Kenyan government backtracked, and the latest IMF aid tranche remains on hold. To compensate, officials have increased sales of shilling-denominated bonds, keeping local debt yields elevated.
Despite a recent interest-rate cut that eased yields, borrowing costs are still near their highest since December 2015. Kenya's 91-day Treasury notes yield 700 basis points more than Uganda's, which holds the same S&P Global credit score. One-year bills are yielding close to 17%, reflecting market concerns over Kenya's fiscal prospects, debt trajectory, and governability.
Key Takeaways
Kenya's revised 2024/25 budget includes expenditure cuts and increased domestic borrowing, but questions persist about its ability to secure external funding. Market concerns about fiscal stability and debt trajectory have deepened, and with IMF discussions over a $600 million disbursement delayed, questions remain about the country's ability to navigate its budget deficit without stoking further social unrest. External funding challenges and the search for politically viable fiscal solutions will be critical in determining Kenya's path forward.
