•The increase in fed rate led to expensive loans as the country, struggled to curb inflation, which currently stands at 6.9 percent.
•The debt threat and strict global financial markets has left the government to resort to high-yielding bonds to attract investors into its securities.
Kenya is still at a threat of bearing the impacts of any new global threats that may emerge in 2024, financial industry sector players have revealed.
In the past year the country has confronted challenges ranging from the war in Ukraine, the prolonged drought that affected the country, rising federal rate and high global inflation.
The increase in fed rate led to expensive loans as the country, struggled to curb inflation, which currently stands at 6.9 percent.
Financial experts from Standard Chartered project that the fed rate will ease from mid this year, signaling that Kenyans will continue to grapple with tough financial market.
According to Standard Chartered, Chief Investment Officer for Africa, Middle East and Europe Manpreet Gill, Kenya’s fiscal policy is set to benefit from a renewed focus on managing external liquidity concerns recede, even as fiscal challenges persist.
“Dollar outlook and fed rate will play a key role in assessing the credit risk by investors moving forward. A key element of our advisory is that investors need to retain a strict investing discipline – they should not force sell, whether it be due to emotional or financial needs, and they should pivot to avoid excessive, permanent losses,” said Gill.
He adds that the current high yield on bonds in many emerging markets will come down as the markets correct themselves.
“We are telling local investors to be cautious and stay diversified, they should increase the quality of their portfolio because we don’t know what will pop up next,” said Standard Chartered Head of Wealth Management Paul Njoki.
Central Bank Governor Kamau Thugge, in his contribution to a publication titled Forging ahead: Challenges, opportunities, and lessons from Kenya’s experience, says that while the country is on a recovery path, there are still significant challenges to be braced this year.
Although global inflation has generally eased, the impact of rapid monetary policy tightening in advanced economies has resulted in a sharp tightening of global financial conditions.
This has reflected in the prevailing high yields on sovereign bonds and depreciation of domestic currencies against the US dollar and other major currencies
According to the CBK governor, the challenges Kenya should brace for in 2024, include tightening global conditions that will cascade to local levels and debt sustainability challenges. And with a bullet payment of $2billion (Sh321billion) Eurobond pending CBK says Kenya will have to relook at some of its priorities.
These factors have exacerbated debt sustainability challenges in Sub Saharan Africa amid tight budgetary constraints and pose a significant risk to inflation.
“Given the limited fiscal space, expenditures toward social sectors, public investment, and safety nets for poor and vulnerable groups have become highly constrained. Additionally, inclusive and sustainably higher growth is needed to effectively address widespread unemployment, particularly among the youth,” said Thugge.
Already Capital market players have raised concerns about the high yields on government papers, saying they are piling unnecessary pressure on an already bloated public debt.
The Association of Pension Trustees and Administrators of Kenya said its members are working on a module that will see domestic capital fuel the growth of public equities in Kenya and shaping a prosperous financial landscape.
The debt threat and strict global financial markets has left the government to resort to high-yielding bonds to attract investors into its securities
The high demand for local debt by the government saw yields on bonds and Treasury Bills rise to an average of 18 per cent and 15 per cent respectively.
Besides the National Treasury has shortened bonds duration, meaning the exchequer could be forced to make higher principal repayments to investors in a shorter time duration.
According to new data from the Central Bank of Kenya (CBK), the average time to maturity for bonds has shortened to 8.5 years as of June from a higher mean duration of 9.1 years in November 2022.
The Treasury is expected to pay down Sh374.5 billion in internal domestic debt redemptions- summation of Treasury bonds and bills maturities, in the fiscal year to June.