New Revelations on How the Eurobond Was Used


There has been recent outcry about a bond that was floated by Kenyan government in June 2014. The uproar is for the ministry of finance to account how they used the bond money.

Kenyans are becoming more furious after learning the amount was used for recurrent expenditure.  But maybe most of us have not understood what bond was it or even if it was necessary.

I have taken time to look at it and try to help us understand. What kind of bond did Kenya float?

Eun.S and Resnick. G (2012) a foreign bond issue is one offered by a foreign borrower to the investors in a national capital market and denominated in that nation’s currency.An example is a Kenyan government issuing Rand-denominated bonds to South Africa investors.

A Eurobond issue is one denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency. An example is a Kenya government issuing Kenya Shillings-denominated bonds to investors in the U.S.A, South Africa, and China.

Gathathai Mwangi

Gathathai Mwangi

What could make Kenya’s a Eurobond is if it was floated in specific countries in a specific denomination say for example dollar-denominated.

It is also interesting to know that markets for foreign bonds and Eurobond operate in parallel with the domestic national bond markets, and all three market groups compete with one another.

Then did Kenya need a Eurobond or it would have been easier to borrow locally?

According to Kenya Bureau of Statistic Report 2014/2015 and other Government Department Reports, Kenya benefited with the following by the floating the bond.

1. The Balance of Payments position improved to a surplus of KSh 126.1 billion in 2014 from that of KSh 31.8 billion in 2013.

2. The Kenya Shilling generally held firm against the major trading currencies despite its depreciation against the US dollar, Sterling pound and Euro, while weighted average commercial banks’ leading rate remained relatively high but stable. The Shilling’s stability was mainly due to proceeds from the successful international sovereign bond floated by the government and increased Diaspora remittances.

3. Gross international reserves increased by 31.6 per cent to KSh 704,430 million as at December 2014, from KSh 535,302 million as at December 2013. The build-up in foreign exchange reserves during the period was largely attributed to proceeds from the sale of the Eurobond.

4. Despite the drop in prices of fuel, electricity and some food commodities, inflation rose slightly but remained within the Central Bank (CBK) target.

5. The share of the development expenditure increased to 44 per cent of the total budget in 2014/15 fiscal year from 33 per cent in 2013/14.

6. Commercial banks credit to the National Government declined with its share in total credit dropping from 22.7 per cent in December 2013 to 9.7 per cent in December 2014.

The share of the banks’ credit going to private sector increased from 61.2 per cent of total domestic credit to 80.2 per cent.

The National Government revised budget increased by 25.6 per cent to KSh 1,924.9 billion in 2014/15, out of which, KSh 1,069.2 billion was for recurrent and KSh 855.7 billion for development expenditure.

From the recurrent expenditure, KSh 324.9 billion was budgeted for Public debt repayment. Total revenue was expected to increase by 18.9 per cent to 1,166.4 billion in 2014/15, with tax revenue and non-tax revenue increasing to KSh 1,130.1 billion and KSh 36.3 billion, respectively.  The extra amount of KSh 758.5 billion would be funded by other sources among them grants and donation but more so loans or bonds.

The government may opt to borrow for local or foreign markets depending on which is competitive.  Is there a danger if we spent the amount on recurrent expenditure?

Working capital play same role in the business as the role of heart in human body. Just as the heart gets the blood and circulate the same in the body , in the same way in working capital fund are generated and circulated in the business.  As and when the circulation stops, the company business becomes lifeless.

This is the same with the government recurrent expenses. Without having them, well funded and running regardless of the number of development project initiated, the government will always be lifeless.

In conclusion it was with enormous benefit we were able to float a Eurobond which was much cheaper than borrowing locally.

Our expense as nation has been increasing at relatively higher rate than our revenue collection. Hence there is need to exploit other means of funding our budget. Also it’s extremely important to fund recurrent expenses.

Naturally, every Citizen from any country want the government to do more without collecting more from them which is technically impossible.

As to whether money was laundered of Eurobond, EACC and CID should investigate more and shade more light on this.


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