National Treasury Plans New Dollar Bond to Buy Back Existing Debt

The National Treasury has unveiled plans to issue a new dollar-denominated bond as part of a fresh strategy to buy back some of Kenya’s existing external debt and ease pressure from upcoming loan repayments.

The proposal, contained in the latest Medium-Term Debt Management Strategy, is part of the government’s broader plan to improve the country’s debt repayment profile by replacing debt that is nearing maturity with longer-term borrowing. If completed, it will mark Kenya’s fourth external debt buyback operation in the last two years.

Under the plan, money raised through the new dollar bond will primarily be used to refinance existing debt through a buyback programme. Any funds remaining after the transaction will be directed towards financing the national budget to help bridge the government’s funding gap.

Although the Treasury has not yet disclosed the value of the planned bond or when it will be issued, officials have confirmed that preparations are already underway.

“These details will be made known to you. What I can tell you is that the buyback plan is decided,” a senior Treasury official familiar with the process said.

The move is aimed at reducing refinancing risks that arise when large amounts of debt mature at the same time. By extending repayment periods, the government hopes to avoid the large lump-sum payments that have previously unsettled investors and increased Kenya’s borrowing costs in international markets.

Debt buyback programme

National Treasury Cabinet Secretary John Mbadi has previously described the debt buyback programme as a proactive debt management strategy rather than an attempt to take on more expensive loans.

According to Mbadi, the government is focused on refinancing existing obligations with longer-dated debt instruments that provide more manageable repayment schedules and reduce immediate pressure on public finances.

The latest proposal highlights a shift in Kenya’s borrowing strategy. Instead of issuing Eurobonds mainly to finance government spending, the Treasury is increasingly using liability management operations to retire existing debt before maturity and replace it with loans that have longer repayment periods.

Economists say this approach helps reduce rollover risks while improving investor confidence in Kenya’s ability to meet its financial obligations.

Economist Elisha Amwai said spreading repayments over a longer period allows the government to avoid sudden repayment shocks while creating more fiscal space for development projects and essential public services.

Kenya began pursuing this strategy in 2024 when it successfully raised $1.5 billion through a Eurobond and used most of the proceeds to buy back a significant portion of the $2 billion Eurobond that matured in February that year.

Before the refinancing, investors had raised concerns over Kenya’s ability to repay the bond, leading to higher borrowing costs and increased fears of a possible default. The successful transaction helped restore confidence in Kenya’s economy and improved the country’s standing in international financial markets.

Since then, the government has carried out additional liability management operations targeting bonds maturing in 2027, 2028 and 2032. The latest planned buyback would continue that strategy by pushing debt repayments further into the next decade.

The Treasury has also been working to diversify Kenya’s external financing sources. Besides exploring the Japanese Samurai bond market, the government has secured World Bank-backed financing, including sustainability-linked loans aimed at reducing reliance on costly commercial borrowing. It has also converted some Chinese loans into yuan-denominated debt to lower financing costs and reduce currency-related risks.

The strategy comes as Kenya continues to manage a growing public debt burden. Treasury estimates show that public debt stood at about Sh12 trillion, equivalent to roughly 68 per cent of the country’s Gross Domestic Product by the end of March 2026.

Debt servicing continues to consume a significant share of government revenue, leaving fewer resources for development spending. The World Bank has repeatedly warned that Kenya’s high debt servicing obligations remain one of the biggest challenges to economic growth, even as it continues to support the country through budget financing and reform-linked lending programmes. The lender has maintained that reducing dependence on expensive commercial debt will be key to safeguarding Kenya’s long-term fiscal sustainability.