Regulator credits Eurobond for Kenya’s Sh1tr debt slash

Friday, April 5th, 2024 08:00 | By
Central Bank of Kenya (CBK) Governor Kamau Thugge
Central Bank of Kenya (CBK) Governor Kamau Thugge. PHOTO/Print

Kenya has reduced her national by Sh1 trillion, owing to the appreciation of the shilling, Central Bank of Kenya (CBK) Governor Kamau Thugge has said.

Thugge, who was addressing a post-Monetary Policy Committee (MPC) press conference yesterday attributed the reduction to the transaction the government did with the Eurobond, which largely led to a reduction in the exchange rate from $160 to $130.

The Kenyan shilling started appreciating against the greenback in late March 2024, after reaching its highest exchange rate of Sh163.50 per USD on January 25, 2024. By Thursday, it had decreased to 131 to the US dollar.

“That transaction that we did with the Eurobond which removed the risks has actually saved the country huge amounts of debt and when you see the overall debt you should see a reduction in terms of shillings,” Thugge said adding: “For every Sh1 the government saved Sh40 billion.”

Debt liabilities

Authorities recently issued a new Eurobond worth $1.5 billion to repurchase its initial Eurobond due in June. This bond, with an average lifespan of six years, was priced at 10.37 per cent, the highest ever for an African nation. The funds were used to buy back Kenya’s existing $2 billion Eurobonds due in 2024.

This move is part of the government’s strategy to manage debt liabilities and smoothen the maturity profile of the 2024 Eurobonds.

The remaining 2024 Eurobonds will be financed through government funds and loans from multilateral and bilat-

eral sources. This diversified financing strategy aims to maintain a low average interest rate in the public debt portfolio, ensuring Kenya’s debt sustainability. This in turn led to the influx of foreign currency from the issuance of the Eurobond, which increased the relative supply of the Green buck, and the improved investor confidence in Kenya’s economy following the successful Eurobond issuance and subsequent debt reduction.

In January, Kenya’s debt stood just above Sh11 trillion. However, with the shilling appreciating by Sh30 against the US dollar, the total debt decreased to Sh10 trillion by February, coinciding with the execution of the Eurobond transaction.

At the same time, Thugge revealed that efforts are underway by the regulator to review capital requirements for banks operating in Kenya, in light of emerging risks in areas such as information communication technology and climate change.

“We expect we will be making a proposal for public participation in the next one month,” he said. It is mandatory for new banks to have a minimum capital of $7.69 million (Sh1 billion), while existing banks are required to maintain 10.5 per cent core capital and 14.5 per cent total capital relative to risk-weighted assets to ensure sector stability and risk mitigation.

Recognising the growing importance of managing climate-related risks, the CBK has developed guidance for banks to integrate these risks into their governance, risk management, and reporting structures, while also emphasising the need for sufficient capital to cover material risks, including those related to cybersecurity and climate change, as part of a global shift towards more sustainable banking practices.

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