9 July 2014

Kenya: Govt Starts Spending Proceeds From the Eurobond

THE shilling is yet to benefit from the use of the $2 billion (Sh175.6 billion) Eurobond due to the high dollar demand to clear growing import bills, Treasury secretary Henry Rotich said yesterday.

Rotich said the government started spending the Eurobond proceeds last Friday with payment of $600 million (Sh52.68 billion) syndicated loan to Citibank London, Standard Chartered Bank London and Standard Bank of South Africa.

The payment of the loan taken in 2011 to boost foreign exchange reserves was due last May but the Treasury successfully sought an extension to next month. "We received the money on June 24 and we have already paid off the syndicated loan," the CS said.

"It may not have reflected in the exchange rate yet because there are many factors including pressure from imports. Going forward, we are going to see the impact on the shilling."

The shilling has been hovering between 87.50 and 88.00 to the dollar since the Eurobond was successfuly floated on the Irish Stock Exchange, where it is trading with a premium of over four per cent, Rotich said.

The balance $1.4 billion( Sh122.92 billion) will be spent on budgeted projects in energy, transport and agriculture sectors, with specific projects set to be published in the next two weeks, Rotich said.

Priority areas include expansion of power transmission lines, drilling of more geothermal wells, dredging of first four berths at the proposed Lamu port, building of commuter rail in Nairobi and basic infrastructure at the one million-acre Galana/ Kulalu irrigation scheme.

Rotich said the funds could slash projected domestic public borrowing to as low as Sh110 billion from Sh190 billion in the budget. This is expected to unlock more money for private sector borrowing and help ease pressure on interest rates.

Proceeds from the bond was however yet to reflect in the official usable foreign exchange reserves by last Friday. The Central Bank reported the figure at $6.094 billion, an equivalent of 4.14 months of import cover.

Meanwhile, Kenya has reached three agreements with South Korea to promote trade and investments between the two countries. They included a deal on grant aid framework, a convention on avoidance of double taxation and prevention of tax evasion, and protection of investments.

The conclusion of the deals follows a visit by Kenyan delegation to Korea in July 2013. Korean ambassador to Kenya Choi Dong Gyou said the agreements will form the legal and institutional basis for future bilateral agreements between the two countries including the private sector.

"We are going to use it to lobby the private sector to participate more in Kenya," Gyou said. "Our area of cooperation will be in line with the national development strategy."

Notable Korean firms in Kenya include the giant technology firm Samsung and LG. Korea's official development aid to Kenya amounts to $54.2 million(Sh4.75 billion).

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