In a calculated bid to manage the swelling debt, the country has announced a KSh117 billion ($900 million) Eurobond buyback, a move that could redefine its financial landscape. The government plans to repurchase a significant portion of its 2019-issued Eurobond ahead of its 2027 maturity, funding the buyback by issuing new bonds with longer repayment periods. This bold step aims to ease immediate debt repayment pressures, stabilise the shilling, and boost investor confidence—but is it a masterstroke or a desperate measure?

Easing the debt burden or kicking the can down the road?

At its core, a debt buyback allows a country to repurchase its outstanding bonds before they mature, often to prevent financial strain and restructure debt obligations. The 2019 Eurobond included a seven-year tranche of $900 million, set for amortised repayments of $300 million annually from 2025 to 2027. With the first major repayment looming, the government is choosing to refinance rather than deplete its already stretched foreign exchange reserves.

On the surface, this strategy looks like a prudent financial move. A successful buyback could smooth out the country’s repayment obligations, reduce short-term borrowing pressures, and project an image of fiscal responsibility to investors. Yet, the devil is in the details. If the new bonds come with higher interest rates—a real possibility given Kenya’s current credit ratings and global economic trends—the country could end up paying even more in the long run.

A shot in the arm for the shilling?

The country’s financial markets have been jittery, with the shilling experiencing relentless depreciation against the dollar. The buyback announcement, however, has already injected a dose of optimism. The shilling gained ground after news broke, mirroring past trends where similar debt management efforts led to short-term currency appreciation. Investors, reassured by the government’s proactive approach, may hold onto their Kenyan assets rather than rushing for the exits.

Yet, currency stability is a delicate balancing act. If investors perceive the move as a mere postponement of an inevitable debt crisis rather than a genuine fix, any gains could be short-lived. The success of this buyback depends on whether Kenya can secure new bonds at favourable rates—an uncertain prospect given the country’s rising debt levels and concerns over revenue collection.

What this means for businesses

For businesses operating in the country, the buyback’s success or failure will have real consequences. A well-executed refinancing plan could stabilise interest rates, ensuring companies have better access to credit. A stronger shilling would make imports cheaper, lowering production costs for businesses reliant on foreign goods. Additionally, by reducing short-term debt obligations, the government could free up fiscal space for development projects, potentially boosting sectors like infrastructure, manufacturing, and agriculture.

However, if the buyback results in higher interest payments in the future, the government may have to increase domestic borrowing to plug the gap. This would drive up interest rates locally, making loans more expensive for businesses and households alike. Moreover, if investors lose faith and pull out, foreign direct investment could take a hit, stifling economic growth.

Painting the bigger picture

Kenya’s debt strategy has long been a subject of debate. With public debt now exceeding KSh10 trillion, the country is walking a tightrope between economic growth and fiscal sustainability. The buyback signals a shift towards more proactive debt management, an attempt to regain control before repayments spiral out of hand.

But this move is not without risks. If global interest rates remain high or Kenya’s economic performance does not improve, future refinancing options could become even more expensive. The success of this buyback will depend on timing, investor sentiment, and the government’s ability to maintain fiscal discipline in the coming years.

In the end, Kenya’s Eurobond buyback is a high-stakes financial manoeuvre—one that could either steer the country towards economic stability or deepen its debt trap. Only time will tell whether this is a strategic masterstroke or a gamble that backfires.