I’ve a prescription for the ailing economy – Thugge
Central Bank of Kenya (CBK) governor nominee, Kamau Thugge, is planning to push the National Treasury to float a dollar-denominated bond to flash out billions of foreign currencies stashed in banks by wealthy Kenyans.
The former Principal Secretary at Treasury says this will be his top priority in a bid to calm the foreign exchange (FX) turmoil in the country, if he gets a parliamentary nod to succeed the current CBK boss Patrick Njoroge, whose term lapses next month.
Thugge says the move will allow rich individuals and businesses to release into the market foreign currencies which they had stockpiled to a historic high of Sh1.1 trillion by March, amid market anxiety.
Kenyans have been rushing to open dollar bank accounts on the projection the shilling will continue devaluing against major foreign currencies, giving them hopes of better gains in the long term as they protect their wealth.
More local loans
While a bond sale implies the government will gobble up more loans from the domestic market, it might still be a rough patch considering investors’ coyness to lend to the government for longer periods over fears of default.
“If we can get Kenyans who are holding the dollar and assure them of better rates, then we have the possibility of easing liquidity of dollar system in the market and building FX reserves in the central bank,” Thugge told the Kuria Kimani-led Finance and National Planning Committee of the National Assembly that was vetting him following his nomination by the president.
The plan, if implemented, might trigger improved circulation and less demand for the greenback thus easing pressure on the shilling.
The sale, which Thugge hinted can be extended to utilise the diaspora remittances, could be in the form of infrastructure bonds, adding to the list of government policy interventions to try and correct the forex market malfunctions.
In mid-March, the government revived the long-dormant interbank market in addition to sealing a deal to import fuel on credit from the Gulf to smoothen out FX volatility. Most of Kenya’s debt, which is sniffing out a big chunk of the forex reserves, will be maturing under Thugge’s term.
Pressure to ease the FX market comes on the back of investors closely watching how the new CBK boss will be fronting policies in the banking sector, tackling inflation rates, and encouraging lending to the private sector.
Thugge, who was previously fingered in the Arror and Kimwarer dam scandal (when he was Treasury PS) before being made a State witness, says his governorship will support mergers to help struggling banks stay afloat while ensuring the sector remains strong to support economic recovery.
“Closing should be a last resort. CBK will make electronic data available on real time basis where people will be able to see how banks are doing. The sooner we can get the real time access data, we can take early corrective action,” said Thugge.
Three banks – Imperial Bank, Chase Bank, and Dubai Bank – collapsed under Njoroge’s reign but many critics felt the situation would have been salvaged if not for the excessive strictness of the apex bank, which should always work independently.
But on matching the direction of monetary policy stance with the fiscal policies which falls under the docket of the Treasury, the former IMF economist says he is open to working in “more consultations” with various stakeholders when it comes to shaping the interest rate and regulatory frameworks.
During the vetting, Thugge put his worth at about Sh450 million. He said his net worth is composed of various assets, including properties, shares and cash equivalents.
Among the notable assets he listed are two parcels of land—one in Ridgeways on Kiambu Road and the other in Thika Greens.
The property demonstrate Thugge’s investment in real estate and his diversified portfolio. Additionally, he possesses an apartment in the upscale Westlands area of Nairobi and a house in Mombasa.
“I have worked with IMF, the Treasury since the Kibaki administration and Central Bank in various capacities,” he told MPs.
In addition to real estate investments, Thugge holds shares in various companies. The details of the shares were not disclosed during the vetting. However, it highlights his involvement in the corporate sector and his stake in the business landscape.
His worth also includes cash equivalents, which indicates his liquidity and ability to invest in different opportunities. The precise breakdown of the cash equivalents was not provided, but they serve as a testament to his financial standing and potential for effective monetary policy management.
CBK retained its base lending rate at 9.5 on Monday as the impact of the last hawkish policy stance in March when the rate jumped by massive 75 points still transmits in the economy.
The cost of living declined to 7.9 per cent in May, a 130bps drop from March’s 9.2 per cent but this reprieve is yet to be felt by the citizens who are financially pressed by the costly consumer goods.
But the upcoming CBK leadership, which recently added Susan Koech as the second deputy governor, is upbeat it will bring back inflation within the preferred range of between 2.5 and 7.5 per cent by July. Treasury projects the economy to grow by 5.5 per cent by end of this year.
Thugge and Koech, a former official at the tourism ministry, were among State officials charged together with then-Finance Minister Henry Rotich in the Arror and Kimwarer dams saga. The two were pardoned as Thugge became State witness.
Kenya has struggled with pervasive corruption over the years despite pledges by the government to hold hundreds of suspects accountable. However, no significant convictions have been obtained as of yet as the EACC is seen dropping drops cases often.
President Ruto has been accused of pardoning those suspected of crime only to appoint them to top government positions.