Kenya is unlikely to default in the upcoming 12-18 months due to access to external financing, but there are no further near-term positive catalysts, Bank of America (BofA) global research said in a report.

Multilateral lenders – International Monetary Fund (IMF) and World Bank - disbursed $1.4 billion in June and July.

“The disbursements strengthened FX reserves and led bonds to trade higher, on average 10 points up since May. These positive catalysts are already priced in, in our view, leading the fiscal year 2022/23 (ending June 30) to close on a happy note,” the report added.  

However, Kenya will need external financing and build gross forex (FX) reserves beyond $8 billion (4.5 months import cover) from the $7 billion (just below four months) in Q1 2023, BofA said. 

Potential positives include a partial buyback, syndication loans or earlier disbursements by official lenders, with World Bank disbursements in Q1 2024 rather than Q2.

“Fiscal performance is unlikely to offer any good news though; we see a muddling-through scenario in this fiscal year,” the bank noted.

The East African nation has been facing increasing debt repayments, pushing the government to raise taxes.

Last week, Kenya’s central bank Governor Kamau Thugge said the country will have enough hard-currency reserves to pay off investors in a $2 billion Eurobond maturing next June.

(Editing by Seban Scaria seban.scaria@lseg.com )