Kenya is set to launch its first diaspora bond, targeting between $200 million (KSh25.9 billion) and $500 million (KSh64.8 billion) by 2026, with support from the World Bank and its insurance arm, the Multilateral Investment Guarantee Agency (MIGA). The bond, denominated in Kenyan shillings, aims to capitalize on the robust inflows of remittances, which have outperformed key export earners like coffee, tea, and horticulture.

In 2024, diaspora remittances reached $4.9 billion (KSh634.55 billion), positioning Kenya as the third-largest recipient in Africa after Nigeria and Ghana. These funds now represent Kenya’s largest source of foreign exchange.

Livingstone Bumbe, deputy director of the National Treasury’s public debt management office, confirmed the bond is in its early stages. “We are working with MIGA for their expertise in structuring diaspora bonds. By June 2025, we expect to have a clearer picture of the bond’s size and features,” Bumbe stated.

Reforming Debt Management

The bond comes as Kenya undertakes critical debt management reforms, including reducing the fiscal deficit, phasing out short-term borrowing, and implementing debt buybacks. However, experts warn that without attractive incentives, the diaspora bond may struggle to gain traction.

“Providing tax incentives, as seen with infrastructure bonds, could encourage participation,” noted Stellah Swakei, an analyst at Standard Investment Bank. While dollar-denominated bonds have been successful in other countries, Kenya’s preference for local currency aims to mitigate forex risks.

Unlocking Diaspora Potential

Kenya’s 2025 draft budget policy statement underscores the government’s ambition to increase diaspora contributions to KSh1 trillion ($7.72 billion) by 2027. The United States currently accounts for over half of the remittance inflows, followed by the UK and Australia.

If successful, the diaspora bond will form part of the government’s KSh213.7 billion ($1.7 billion) external borrowing plan for the 2025/26 fiscal year. The funds will help bridge a KSh759.4 billion ($5.9 billion) budget deficit, with the remaining gap to be filled through domestic borrowing.

The Treasury has emphasized caution in accessing international capital markets, given the high costs associated with Eurobond issuance in 2024. However, the growing reliance on domestic borrowing could crowd out private sector access to credit, as government securities are perceived as low-risk investments.

This groundbreaking diaspora bond presents both opportunities and challenges, but its success could pave the way for innovative financing solutions in Kenya’s public debt strategy.