https://www.kenyans.co.ke/news/103512-investor-exodus-affects-securities-uptake-amid-recession-fearsPresident William Ruto and his new Treasury Cabinet Secretary, John Mbadi, have a lot of work ahead of them, to source funds to plug the budget deficit as investors shy away from the government's primary means of raising capital.
Kenya's financial markets are facing severe turbulence as nervous investors increasingly shun long-term Treasury bills and bonds. Central Bank of Kenya (CBK) data reveals a growing reluctance among investors to commit to long-dated securities, further complicating the government's strategy to shift focus to domestic borrowing after abandoning controversial tax hikes.
This reluctance is exacerbated by a recent market shock that saw the Nairobi Securities Exchange (NSE) haemorrhage Ksh33 billion in investor wealth. The sell-off, driven by foreign investors seeking safer assets, was triggered by concerns over a looming recession in the United States, underscoring the fragility of Kenya's financial landscape.
The government’s August 1 debt auction painted a grim picture, with the benchmark 1-year Treasury bill receiving less than 10 per cent of the expected demand.
This tepid response signals a steep uphill battle for a government already struggling under a heavy debt burden. The weak demand has made financing the budget increasingly costly and complex.
CBK’s latest report further highlights the dire situation, showing a staggering 70.6 per cent decline in bond turnover in the domestic secondary market during the week ending August 8.
NSE Trading floor
Officials of the Nairobi Securities Exchange at the trading floor in Nairobi. PHOTO NSE
The report also notes a significant rise in yields on Kenya's Eurobonds, with an average increase of 57 basis points, mirroring similar trends in Angola and Zambia.
Financial experts are raising alarms. "It is going to be a problem, and it feels like they are just kicking the can down the road," remarked Kenneth Minjire, a senior associate for debt and equity at AIB-AXYS. His concerns reflect a growing sentiment that the government's financial strategy is unsustainable.
President William Ruto’s recent decision to scrap tax hikes worth over Ksh346 billion following violent protests has only added to the fiscal strain. The finance ministry responded by increasing local borrowing targets by 42 per cent, now aiming for Ksh404.6 billion. However, with domestic debt instruments underperforming, the path to achieving these targets appears increasingly uncertain.
The violence and unrest that have engulfed major urban centres have further dampened investor confidence. CBK data shows a sharp drop in demand for Kenyan debt instruments at the central bank’s weekly auctions, with investors offering to buy just a third of the available Treasury bills during the height of the turmoil in June. Bond subscriptions plummeted to a mere 2.4 per cent, a dramatic fall from the pre-crisis rate of 94.7 per cent.
Despite these alarming trends, Central Bank Governor Kamau Thugge attempted to downplay concerns, asserting that it is still early in the financial year. He remains optimistic that the government can meet its domestic financing requirements, though his assurances have done little to ease market anxieties.
Topic: Kenya-Investor Exodus Affects Securities Uptake Amid Recession Fears (Read 839 times)