•Data shows that from the Sh3.71 trillion domestic debt, Treasury Bonds account for 84 percent, Treasury Bills 14 percent and others mainly overdraft from CBK two percent.
•He pointed out that the low uptake of long term state securities shows the low confidence that Kenyans have with the monetary policies being implemented.
The government will have to restructure its securities to remain attractive if it is to use them in raising funds for debt repayment.
CBK Board Chairperson nominee Andrew Musangi while appearing before the senate and National Assembly finance committees, said that the current government instruments are mismatched with what the market needs making it hard for the government to effectively use them.
In a shift from external and local borrowing, President William Ruto’s administration had announced that announced his government will tap on the long tenure Treasury Bonds to refinance the maturing domestic debt in its medium term debt management strategy.
In a three-hour grilling session with the committees chaired by Molo MP Kimani Kuria, Musangi said that once properly implemented the uptake of the securities will ease the pressure currently witnessed in stabilising the forex reserves.
“If you look at it the short term treasury bills are oversubscribed heavily by about 700 percent while the long term bonds are subscribed at 12 to 14 percent so we will have to find the perfect balance between the tenure of our debt instruments to ensure they remain attractive,” said Musangi.
Throughout this year, investors have been showing preference for the short-end of the government securities market.
Treasury on the other hand has only managed to attract uptake of long-term securities by offering very high interest rates above the market average.
National Treasury data shows that from the Sh3.71 trillion domestic debt, Treasury Bonds account for 84 percent, Treasury Bills 14 percent and others mainly overdraft from Central Bank of Kenya two percent.
Data from the Central Bank of Kenya shows that The Treasury bills auction of September 7 received bids totaling Sh38.8 billion against an advertised amount of Sh24.0 billion.
This represents a performance of 161.8 percent compared with the 91-day, and 182-day and 364-day whose rates increased marginally
The exchequer has been planning to issue medium to long-term bonds to replace shorter-dated instruments such as Treasury Bills to counter the record-high domestic maturities expected by the end of 2023.
When put to task on how he will tackle the shilling that has continued to devalue despite increased rates and government to government deal that did less to cushion the local currency, the nominee said that the state will have to merge both fiscal and monetary policies.
According to Musangi, the fiscal interventions to stabilise the shilling will include creating investor friendly policies that attract Foreign Direct Investments and supporting export oriented businesses in the country through a stable tax environment.
“At the monetary level we can increase interest rate which makes domestic investment environment very expensive for participants in local businesses,” added the CBK chair nominee.
He pointed out that the low uptake of long term state securities, can be interpreted to show the low confidence that Kenyans have with the monetary policies being implemented.
“When we talk about people bidding for state instruments the bid is a reflection of confidence they have in the direction that the country is taking, they are also a reflection of the soundness of the monetary policies being adopted by the country,” added Musangi.
The government has in recent past renewed push to tap on the small investors and grow the base rather than focusing on the few wealthy investors.
President William Ruto yesterday made a case for the “Hustlers” to invest in government securities by asking the National Treasury to lower the threshold for T-bills and bonds to Sh5,000.
He said there was a need to expand the scope of participants and make it possible for more local and Kenyan investors from both within the country and the international investors to participate in this process.
Experts had earlier warned that the continued negative economic shocks occasioned by the shortage of US dollars is taking a toll on the shilling leading to liquidity challenges.