Kenya is considering issuing its first-ever bond on China’s domestic debt market, known as a panda bond, as the East African nation seeks to close a significant financing gap in its budget for the current fiscal year.
The plan was disclosed in a finance ministry document released on Friday as Kenya explores alternative sources of funding for infrastructure and other development projects amid rising public debt and heavy annual debt repayments.
“The government will explore innovative financing instruments, including debt swaps, sovereign bonds, Samurai bonds, Sukuk bonds, sustainability linked bonds, diaspora bonds and other market-based financing instruments,” the ministry said in its annual borrowing plan for the fiscal year that began last month.
According to the document, the government is considering an inaugural panda bond of about $300 million as part of its external financing strategy.
Kenya also plans to issue an $815 million Eurobond in the second quarter of the financial year and raise more than $500 million from the Japanese market, including through a Samurai bond.
The ministry did not provide further details on the proposed panda bond but said the transaction would require the government to obtain the necessary legal and regulatory approvals.
The government also plans to proceed with a $1 billion debt-for-food-security swap with the U.S. International Development Finance Corporation, an arrangement first announced in December.
Officials in Nairobi have projected a budget deficit equivalent to 5.5 per cent of gross domestic product for the fiscal year.
The deficit is expected to be partly financed through net external borrowing of 247.2 billion Kenyan shillings, equivalent to about $1.9 billion, with the remainder expected to come from domestic borrowing.
Other sources of external financing for the financial year include funding from the World Bank, the African Development Bank and the Italian government.
Kenya is also seeking to reduce its debt-servicing burden by retiring at least $500 million of expensive external debt during the financial year.
The finance ministry said the move is intended to reduce debt-servicing costs and improve the sustainability of the country’s public finances.
The proposed panda bond would give Kenya access to China’s domestic capital market as the government continues to diversify its financing sources and manage the pressure created by its growing debt obligations.
