Over 10 years we help companies reach their financial and branding goals. Maxbizz is a values-driven consulting agency dedicated.

Gallery

Contact

+1-800-456-478-23

411 University St, Seattle

maxbizz@mail.com

How dollar bond will release idle billions – Business Daily

President William Ruto (seated, right), and his deputy Rigathi Gachagua with corporate chiefs at the NSE on October 11, 2022. PHOTO | DIANA NGILA | NMG
With more Kenyans stockpiling dollars in banks following the increasing demand for the greenback, the government now wants to give them an incentive to release the money into the economy.
This follows Tuesday’s announcement by President William Ruto that his government will issue a local bond denominated in dollars as he looks for alternatives to fund the budget. This comes at a time Kenya has shifted focus to borrowing locally due to the expensive foreign debt.
President Ruto said the government will issue a dollar-denominated bond as part of the strategy to raise financing for government projects through the Nairobi bourse as faulted borrowing from external markets.
Read: Kenyans hold Sh905bn in dollars as shortage bites
Kenya has been struggling to access foreign loans due to the high cost of debt, which saw it cancel a Eurobond and syndicated loan issues early this year, with investors demanding rates of up to 22 percent to lend.
But the government now sees an opportunity to tap local funds, banks and individuals holding up to Sh905 billion worth of dollar deposits, according to the latest Central Bank of Kenya (CBK) data.
“My administration will revitalise the capital markets by embarking on the privatisation of State-owned enterprises where divestiture is overdue and strategic. As well as the introduction of such innovative products as a domestic dollar-denominated bond,” President Ruto said on Tuesday.
Kenya plans to borrow Sh280 billion from the international market this financial year to finance the Sh845 billion hole in the budget.
The new administration has, however, pledged to cut the budget by almost a similar size of Sh300 billion as the government looks for a way out of the budget deficit.
Raising money from the domestic market has also slowed down as local investors pressure the CBK to give better rates in the wake of global hikes in lending rates that have made local assets less attractive.
Investors have been unwilling to lend the government billions of shillings in a push for higher interest rates but the CBK has refused to breach the 14 percent return.
Since July this year, the CBK has borrowed Sh106.1 billion in bonds, which is 64.2 percent of the Sh165 billion sought by the government.
Issuing a dollar bond locally will likely attract the interests of investors seeking to make higher returns on the dollar.
Kenyans were holding onto the Sh905 billion deposits in banks to protect the value of their wealth against the falling shilling.
The shilling has declined to 120.81 against the dollar at a faster pace than last year’s 0.5 percent depreciation, increasing the value of dollar holdings. During this period, dollar deposits jumped 19.6 percent from Sh755.9 billion at the beginning of the year.
The dollar bond could also ease pressure on the CBK after Kenya’s import cover dropped to the lowest levels in seven years, reflecting reduced foreign funding amid a faster growth in imports than exports and a slowdown in remittances from Kenyans abroad.
The CBK data shows the stockpile of foreign currencies stood at $7.32 million (Sh752.96 billion) last Thursday, a drop of $103 million (Sh12.45 billion) compared with the week before.
[email protected]

source

User Avatar

Author

Joseph Muongi

Financial.co.ke was founded by Mr. Joseph Muongi Kamau. He holds a Master of Science in Finance, Bachelors of Science in Actuarial Science and a Certificate of proficiencty in insurance. He's also the lead financial consultant.