12 February 2014

Kenya Cautioned On Size of Planned Sh172 Billion Eurobond

THE government should consider reducing the size of the planned eurobond because the country may end up paying more for the issue.

This is because the government may be forced to start settling for a debt that it has not already put into use or that which has not started bringing returns. There are also fears that part of the proceeds will be used for recurrent expenditures with mounting pressures presented by the devolved system of government.

These factors may see the country paying higher for the bond with investors demanding more because of the perceived risks associated with such a huge issue coming from a small country like Kenya.

"The size of the bond determines the price," Khan said during a media briefing yesterday. "In our view, all depends on what the proceeds are used for."

The government has said that the proceeds of the bond to be issued soon will go towards financing the Sh330 billion deficit in the national budget. Part of the bond will be used to settle the Sh51 billion ($600 million) that was borrowed from international banks last year.

Khan said the government should put the remaining amounts to infrastructure expansion projects to drive the country's growth in the future.

The respected economist however said the announcement of commercial discovery of oil in Kenya by Tullow Oil is likely to push up the interest in the eurobond.

A peaceful general elections in March last year has also lifted the profile of the country and boosted investor confidence, Khan said. This coupled with the fact that Kenya's economy is private sector driven plus a robust financial services sector and a technology hub presents good prospects for growth in the future.

"This is a good foundation for more robust growth in the future," said Khan. Khan however noted that high prices of food poses a threat to inflation outlook in the short term.

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