Kenya signs a 25 billion yen memorandum of intend.

Kenya signs a 25 billion yen memorandum of intend. Kenya aims to raise funds from Japan through the issuance of a Samurai bond, a financial instrument. At the ongoing Tokyo International Conference on African Development (TICAD) 2025 in Yokohama, Japan, Kenya signed a memorandum of understanding (MoU) for the Samurai bond between its Treasury and Japan's Nippon Export and Investment Insurance (NEXI). This would reduce dependence on traditional donors. Japan has committed to providing Kenya with up to 25 billion yen (approximately US$169 million or Ksh22 billion) in Samurai bonds. This money will be used to promote Kenya's local automotive and parts manufacturing industry. In particular, the support will be directed toward the production of electric vehicles and improving power transmission and distribution to increase energy efficiency and reduce electricity costs. This financing is intended to stimulate industrial growth, create jobs, and promote innovation in these sectors. In addition to the Samurai bond, Kenya is exploring other financing instruments such as sustainability-linked bonds and renminbi bonds to better manage its debt and reduce borrowing costs. - The market tends to value Samurai bonds at higher risk premiums than domestic Japanese bonds of similar credit quality. - Samurai bonds offer issuers access to a large pool of Japanese investors and diversify their funding sources. This combination of structural and risk aspects makes Samurai bonds a specialized financing instrument that presents both opportunities and challenges for issuers and investors. Samurai Risks for Kenya The risks associated with issuing Samurai bonds (yen-denominated bonds) in Kenya include the following: – Currency risk; – Compliance and regulatory risk; – Market and political risks. On the positive side, Samurai bonds help Kenya diversify its debt portfolio beyond the US dollar, thus reducing the risk of a weakening shilling against the dollar. Japan's very low interest rates (approximately -0.1%) also make them an attractive financing option for reducing borrowing costs in the short term. Impact on Kenya's Creditworthiness The impact of the Samurai bond issuance and the associated borrowing on Kenya's creditworthiness can be summarized as follows: – Kenya's credit rating has been downgraded in recent years, including by S&P Global and Fitch to B- and by Moody's to Caa1. This is primarily due to high debt levels, liquidity risks, and fiscal challenges. These downgrades have increased borrowing costs and negatively impacted market confidence, making debt servicing more expensive for Kenya. – Moody's revised its outlook for Kenya from "negative" to "positive" in January 2025, signaling an improvement in liquidity risks and debt sustainability due to economic reforms and more prudent fiscal management. This positive outlook could reduce borrowing costs and ease debt servicing, which in turn could promote economic growth and access to cheaper external financing. The issuance of Samurai bonds, often denominated in yen at low interest rates, contributes to the diversification of Kenya's debt portfolio but also exposes the country to currency risks. Appropriate management of this risk, combined with fiscal consolidation efforts, could help maintain or improve Kenya's creditworthiness over the long term. Continued improvements in fiscal management, tax collection, and debt sustainability are critical to improving Kenya's creditworthiness. Conversely, a lack of management of these risks could lead to further downgrades and higher borrowing costs. The Samurai bond can essentially have mixed effects: It can contribute to cheaper financing and diversification, but its impact on creditworthiness depends on how well Kenya manages the associated risks and overall fiscal discipline. Isn't Kenya at risk of over-indebtedness? There is strong evidence that over-indebtedness is a real problem in Kenya, particularly due to high public debt and the rise of digital loans. Kenya's public debt remains high and continues to rise. As of May 2025, total public debt stood at Kshs 11.5 trillion, an increase of 10.3% over the previous year. The debt-to-GDP ratio was 67.4% in December 2024, 17.4 percentage points above the 50% threshold recommended by the IMF for developing countries. This increased debt burden comes with high debt servicing costs and raises concerns about fiscal and macroeconomic stability. The risk of over-indebtedness remains high despite efforts at fiscal consolidation, indicating the danger of over-indebtedness at the national level. On the consumer side, the growing digital lending market has increased the risk of excessive borrowing and over-indebtedness, particularly among low-income households. Digital loans are easy to obtain in Kenya but often come with high interest rates, short repayments, and multiple loans from different lenders. Surveys have shown that many digital borrowers juggle multiple loans, with late payments and defaults common. This has led some households to reduce their necessary spending or dip into savings for loan repayments, indicating financial hardship. Research also suggests that over-indebtedness in Kenya is more related to socioeconomic factors such as low and irregular incomes than to financial irresponsibility. The combination of rising living costs, income volatility, and easy access to expensive credit products contributes to consumers' risk of over-indebtedness. In summary, there is indeed a real risk of over-indebtedness in Kenya, both at the macroeconomic level due to high public debt and at the household level due to the increasing use of digital credit and socio-economic challenges. @https://cytonn.com/topicals/review-of-kenyas-1 @https://www.ainvest.com/news/fitch-affirms-kenya-outlook-stable-2507 @https://www.bloomberg.com/news/articles/2025-08-20/kenya-japan-agree-on-terms-for-yen-loan-instead-of-samurai-deal @https://eastleighvoice.co.ke/jica/199689/kenya-secures-sh22-billion-loan-from-japan-to-boost-industry-cut-power-bills