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 Kenya should avoid relying too heavily on external debt as it seeks to fund its medium-term development plans up to 2012, the International Monetary Fund said.
East Africa's largest economy has had plans to issue a debut US$500 million euro bond since 2007, mainly to create a benchmark and to raise private inflows. It wants to become a middle-income country by 2030.
"An international bond is not without risks, especially given the current market conditions, high carrying costs and foreign exchange risks," the fund said in a statement seen by Reuters.
Kenyan officials shelved the bond plan when a bloody post-election crisis in early 2008 rattled investors and put the country's credit rating at risk. They hope to revive it when the global economy recovers.
"High reliance on foreign direct investment flows, especially if in the form of debt and corporate borrowing from abroad to finance the private-sector initiatives, could together with public-sector financing worsen overall debt dynamics," the IMF said.
The country's best option is to seek concessional loans for financing the public investment part of its medium-term economic development plan, the fund said.
"Authorities are advised to re-engage donors and avoid excessive borrowing," it said in the statement which was compiled by the IMF and the International Development Association.
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