Economy experts have dispelled fears that investors are losing confidence in Kenya, following the low performance of the Central Bank of Kenya (CBK) tap sale earlier this month and the poor performance of ten and twenty-year bonds issued this week.
Churchill Ogutu, Senior Research Analyst at IC Group, and Stellar Swakei, an Economics and Investment Analyst, maintain that the market remains relatively stable despite the shilling losing ground to the dollar. The two experts point to various factors contributing to the low performance beyond the anti-government protests that have rocked the country for a month.
This week, the CBK reopened two bonds—the ten and twenty Years Reopened Treasury Bonds Issue Nos. FXD1/2024/010 & FXD1/2008/020 dated 22/07/2024—but both underperformed, leading to speculation that investors are shying away from investing in Kenya.
The Central Bank also announced the results for the 10-and 20-year reopened treasury bonds, with a total of Ksh30 billion offered. Bids received amounted to Ksh14 billion, indicating lower-than-expected demand.
Earlier this month, CBK launched a tap sale on the FXD1/2023/02 bond, targeting Ksh20 billion but receiving bids worth only Ksh487.5 million, achieving just 2.44 per cent of the intended amount. This underperformance underscores the depth of the crisis. However, the CBK highlighted that overall sales this week managed to raise 16.973 per cent of the target.
This underperformance followed Moody's, a global credit rating agency, downgrading Kenya's credit rating this month, exacerbating concerns.
The agency cited the government's inability to manage burgeoning debt and its decision to withdraw the Finance Bill in favour of budget cuts to reduce the fiscal deficit. Moody's downgraded Kenya's credit ratings to "Caa1" from "B3" and projected the country's debt affordability to remain weak.
While speaking to Kenyans.co.ke, Churchill Ogutu argued that despite fears of economic turbulence, the unprecedented situation of the government withdrawing the Finance Bill 2024 and capping government spending at 15 per cent has led to slowed spending, which has impacted market performance.
“The CBK bond’s performance may have been influenced by the low government spending since the dispersal of funds from the government has slowed until the government sorts the Supplementary Budget,” Churchill noted.
Swakei on the other hand pointed out that the bonds were not attractive to investors since the coupon rate, which is the interest earned on the bond over its lifetime, was predetermined and thus "unattractive" to investors.
An analysis by the Africa Report earlier this month revealed that Kenya’s capital costs might increase due to the decision to borrow more and the uncertainty surrounding the figures before a final settlement on July 5.
During a roundtable interview, President Ruto stated that Kenya would need to borrow Ksh1 trillion to cover the budget deficit after the withdrawal of the Finance Bill 2024. However, on July 5, he later remarked that Kenya’s total debt for the financial year would be Ksh766 billion, with Ksh169 billion required to bridge the gap.
Stellar Swakei argued that this uncertainty could be why investors did not invest in the bonds. “President Ruto stated Kenya could borrow Ksh1 trillion after the Finance Bill was rejected. Some investors may be thinking the government will offer a more lucrative bond and so they are holding back.”
Despite these concerns, experts reassure that Kenyans holding dollars will be in the safest position, as global experts still anticipate the shilling will fall at some point.
This economic scenario unfolds as Kenya grapples with investor confidence amid a turbulent fiscal environment. The combined effect of the CBK’s bond performance, the government's withdrawal of the Finance Bill, and Moody’s downgrade are critical indicators of the financial challenges ahead.
Nonetheless, experts remain optimistic about the market’s resilience, urging a closer look at government spending and fiscal policies to stabilise the economic landscape.