Kenya’s sovereign dollar bonds experienced a sharp decline following President William Ruto’s decision to abandon a $2.3 billion fiscal plan aimed at balancing the budget and ensuring the nation’s debt sustainability.

This move came in response to widespread and violent anti-government protests that have rocked the country.

The nation’s 2031 debt security plummeted to its lowest price since its issuance in February, making Kenyan bonds one of the poorest performers among emerging and frontier markets since the demonstrations began on June 18.

The protests have resulted in at least 17 deaths and numerous injuries, reflecting the severe public dissatisfaction with the proposed fiscal measures.

Kenya, like many other developing nations, faces an urgent need to implement fiscal reforms to reduce elevated debt levels, control soaring interest costs, and secure funding from the International Monetary Fund (IMF).

However, the proposed measures met significant resistance from a populace already burdened by a cost-of-living crisis exacerbated by post-COVID inflation.

Lawmakers initially compromised on some of the most contentious proposals, such as a 16% tax on bread, but continued public pressure forced the complete abandonment of the plan.

In a televised address, President Ruto conceded to the demands of the protesters. “I concede,” he said. “I will not sign this Finance Bill, 2024. I run a government but I also lead people. And the people have spoken.”

The decision to scrap the fiscal plan leaves Kenya in a precarious financial position. The country’s budget deficit currently stands at 3.3%, with an interest burden consuming one-third of government revenue.

The failure to implement the fiscal reforms raises concerns about Kenya’s ability to stabilize its finances and meet its commitments under the economic plan agreed with the IMF in 2021, which includes reducing the budget deficit, boosting revenue collection, and curbing wasteful spending.

The financial markets reacted swiftly and negatively to the news. Since June 18, Kenya’s securities have handed investors a negative return of 1.3%, marking the most significant losses after Gabon and Egypt in a Bloomberg Index of developing-nation sovereign dollar bonds.

During the same period, the average return for emerging markets was a positive 0.3%.

The protests erupted following President Ruto’s push for new taxes on various sectors, including motor vehicles and mobile-money transfers, to help stabilize the state’s finances.

The rejection of these measures by the public underscores the significant opposition to the ambitious budget and the challenges Kenya faces in making its debt sustainable.

Simon Quijano-Evans, chief economist at Gemcorp Capital Management, highlighted the broader implications for sub-Saharan Africa, a region heavily impacted by global economic shifts such as Russia’s invasion of Ukraine.

“Combined with a very young and dynamic population facing economic challenges on all fronts, this is clearly a huge burden for African society, as seen in the reactions to Kenya’s finance bill,” he said.

Hasnain Malik, a strategist at Tellimer, noted growing concerns about Kenya’s long-term solvency.

“Although the nation’s short-term external liquidity issues had been mostly resolved, its latest fiscal performance has been disappointing,” Malik wrote in a note dated June 21. “This underscores the challenges Kenya faces in making its debt sustainable.”

With the fiscal plan scrapped, President Ruto has few viable options left to address the budget deficit and rising interest costs.

The protests, driven largely by young Kenyans who have previously been apolitical, signal a new level of public engagement and resistance to government policies that fail to address the immediate economic hardships faced by the populace.

Ghana’s eurobond holders are being urged to accept significant reductions in their payments to align with the terms agreed upon by bilateral creditors, according to social justice organizations.

London-based Debt Justice, formerly the Jubilee Debt Campaign, and Accra’s Integrated Social Development Centre (Isodec) have called for bondholders to agree to a 50% cut in debt payments, arguing that this is necessary to match the relief granted by countries such as the UK and China.

The current discussions suggest that the debt relief being considered would result in bondholders receiving 15% more than bilateral creditors.

Debt Justice and Isodec stated that for bondholders to receive terms as favorable as those extended to government creditors, a 50% reduction in their payments is essential.

Ghana is restructuring nearly all of its $44 billion obligations as part of the conditions for a $3 billion International Monetary Fund (IMF) program.

After completing a domestic debt exchange last year, the nation is now close to finalizing an agreement with its bilateral lenders to restructure $5.4 billion and aims to reach a permanent deal with investors on $13 billion of US currency bonds by the end of June.

“Ghana’s negotiations with bondholders are at a crucial stage,” said a joint statement from Debt Justice and Isodec. “For a deal to be struck, bondholders must offer at least as favorable terms as government creditors, and the IMF must confirm that the terms meet their debt relief targets.”

Ghana’s initial agreement with bondholders, reached in April, was rejected by the IMF as it did not demonstrate a sufficient reduction in the country’s debt-to-GDP ratio, which is required to be reduced to 55% by 2028.

The initial proposal would have repaid bondholders 71 cents for every dollar lent, whereas an agreement in principle reached with official creditors in January offered 62 cents for every dollar lent.

“This means that for payments to bondholders to be reduced to 62 cents for every dollar lent—matching payments to governments—they would have to be cut by 50%,” stated the NGOs.

Ghana, utilizing the Group of 20’s Common Framework to reorganize its bilateral loans, recently received a draft memorandum of understanding from its official creditor committee.

The country is currently renegotiating some terms with these creditors to finalize an agreement that aligns with the January in-principle pact.

Signing this memorandum of understanding will enable the IMF to make its third disbursement of $360 million to Ghana, increasing the total amount received under the program to $1.56 billion since it began in May last year.

The G-20 framework has broadened the traditional Paris Club of sovereign creditors to include major lenders such as China, reflecting a more inclusive approach to global debt restructuring.

Senegal has secured $750 million in debt through bond sales as investors’ confidence in the nation’s economy surged.

Senegal is the fourth sub-Saharan African nation to tap into the bond market this year, suggesting a renewed sense of stability and economic promise.

The bond, which matures in 2031, was issued in two tranches at a coupon rate of 7.75%. Initially, $500 million was sold on Monday with an additional $250 million on Tuesday.

According to data compiled by Bloomberg, JPMorgan Chase & Co. acted as the lead manager for the bond issuance. A spokesman for Senegal’s Treasury confirmed the total amount raised.

The successful bond sale marks a notable turnaround for Senegal, which faced considerable uncertainty earlier this year.

Former President Macky Sall had postponed the elections originally scheduled for February, prompting widespread protests and raising concerns about political instability.

However, the situation stabilized when Sall conceded to public pressure and held the vote in March.

The election saw opposition leader Bassirou Diomaye Faye triumph over Sall’s chosen successor. Faye’s victory brought initial unease regarding his policy direction, but market sentiment has since improved.

According to Samir Gadio, head of Africa strategy at Standard Chartered Bank, market uncertainty has significantly moderated post-election, though some risk premium persists.

“This market comeback by Senegal was unexpected so soon, even though investors generally felt the country could be a candidate for a new issuance,” Gadio remarked, emphasizing the surprise and optimism surrounding the bond sale.

The proceeds from this bond issuance are expected to bolster Senegal’s financial reserves, providing a buffer for potential additional financing needs.

This includes the repayment of $162.9 million on a bond maturing in July, which is a crucial step in maintaining fiscal stability.

Economic projections from the International Monetary Fund (IMF) are optimistic about Senegal’s future.

The IMF anticipates the country’s budget shortfall will decrease to 3.1% of GDP in 2024 from 3.9% last year.

The commencement of oil and gas production later this year is expected to significantly boost economic growth, potentially doubling the growth rate to 8.3%.

Moreover, the IMF forecasts a decline in Senegal’s debt-to-GDP ratio, from 79.6% last year to 72.5% in 2024. This reduction follows increased borrowing to finance stakes in oil projects and election preparations.

Senegal’s successful bond issuance comes in the wake of other sub-Saharan African nations re-entering the international capital markets.

Ivory Coast led the way with a $2.6 billion eurobond sale in January, followed by Benin and Kenya, which raised $750 million and $1.5 billion, respectively.

The positive reception of Senegal’s bond sale signals a broader investor confidence in the country’s political and economic trajectory under Faye’s leadership.

With the anticipated start of oil and gas production, Senegal is poised for substantial economic growth, making it an attractive prospect for investors seeking stability and returns in emerging markets.