The Kenyan shilling is expected to start strengthening in the last quarter of this financial year as debt pressure, negative geopolitics and fuel prices stabilise.
The 2024 outlook by diversified financial firm, Sanlam says international investors' eyes are on Kenya as it arranges to clear the inaugural Eurobond of $2 billion a decade ago.
"As uncertainties around Kenya’s repayment of its 2024 Eurobond ease, coupled with less restrictive monetary policy globally, this could see improved sentiment from foreign investors towards Kenyan Equities trading at historically low valuations,'' Sanlam chief investment officer Shritesh Nanji said.
"We expect this to lift pressure on the shilling that has since shed 21 percent against the US Dollar in just a year.''
On Thursday, the shilling traded at 161.75 against the dollar, having crossed the 160 mark on Monday.
The International Monetary Fund (IMF) on Wednesday approved a $941 million (Sh150 billion) lending boost to Kenya, with an immediate disbursement of $624.5 million (Sh110 billion), offering some relief to the country as it battles financial pressures.
The disbursement under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs will also be topped by a release of $60.2 million under the Resilience and Sustainability Facility (RSF) arrangement.
The IMF facility is among the loans Kenya is counting on to execute the Eurobond buyback plan it had planned for last December but failed.
Early this month, a National Treasury official told this writer that the state was awaiting several international facilities to settle the Eurobond by March.
The country is also waiting on a $500 million facility from TDB. Kenya largely relied on this amount to execute the buyback but was delayed.
Last week, the exchequer said it was considering issuing Japanese and Chinese bonds to settle the buyback, adding to a list of funding options.
"The government will also explore other alternative sources of financing including climate change financing options, Debt for Nature Swaps, Samurai and Panda bonds if the market and macroeconomic environment allow",'' the exchequer says in the latest Budget Policy Statement.
Apart from debt, Sanlam views the government-government oil arrangement as a blessing to the local currency, with data showing that the deal has helped to ease depreciation by three percent.
In the current arrangement, the country, through appointed local oil marketers, receives fuel on credit terms for up to six months from Emirates National Oil, Abu Dhabi National Oil and Saudi Aramco.
Once the appointed oil marketer receives the fuel, it sells to its peers in shillings before being supplied to retailers.
The shillings paid by local oil marketers are kept in escrow accounts managed by three local banks led by Kenya Commercial Bank, which takes 180 days to collect enough dollars to pay suppliers in the Gulf.
He said fuel is the country’s single-largest import commodity that required $500 million monthly, piling pressure on the country's limited forex reserves during the Open Tender System regime.
Dan Gathogo, deputy chief Investment Officer at Sanlam anticipates the easing of the ongoing geopolitics as the Russia-Ukraine and Israel-Palestine crises deescalate.
'We expect this to calm the global economy and restore sanity in the financial system. The possibility of the US slowing hikes on the Federal Reserve rate will automatically positively reset the shilling and other weak currencies,'' he said.
He adds that the high-interest rate environment currently witnessed in the country will be positive for new capital being deployed into government bonds.
"We expect interest rates to start easing toward the second half of the year as the government’s liquidity position eases. Receipts from International Financial Institutions (IFIs) should improve forex liquidity paving the way for lower interest rates''.
