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President William Ruto targets billions in bank accounts with dollar bond

President William Ruto (centre), Deputy President Rigathi Gachagua (left), and the chairman of Nairobi Securities Exchange Kiprono Kittony (right) during the launch of the enhanced Nairobi securities exchange marketplace on October 11, 2022. [Wilberforce Okwiri, Standard]

President William Ruto is planning to issue a dollar-denominated bond aimed at attracting billions of dollars in foreign currency deposit accounts.

Speaking on Tuesday during the bell-ringing ceremony to mark the launch of the enhanced Nairobi Securities Exchange (NSE) Market Place, the head of state said this is one of the ways to enhance the domestic market even as the new government plans to shift from external borrowing.

Dr Ruto, who promised to list between six and 10 State-owned enterprises at the NSE, said the stock market had the potential to raise more revenue through debt instruments.

He has already indicated that he wants to move away from external borrowing.

"That money that we are desperately looking for out there, with proper instruments, we can get those resources from the people of Kenya through NSE," the President said even as he promised to issue a dollar-denominated bond.

This is will be like issuing a Eurobond - an external bond normally denominated in dollars - in the local market.

Kenya has since 2015 mostly issued Eurobonds outside the country.

A dollar-denominated bond would be attractive to investors at a time when Shilling has weakened considerably against the greenback.

By end of July, Kenyans had stashed Sh904.3 billion in bank accounts as they sought to hedge their wealth against a rise in prices of goods and services and the weakening of the Shilling, which were eroding the value of their wealth.

With an attractive dollar-denominated bond, which will be paid in dollars, investors might be lured to sink their money in those debt instruments rather than park them in banks.

The government could in turn use the money to finance its budget and repay its external debts.

Economist Churchil Ogutu said details of the bond are still patchy.

"I am still struggling to get the end game of this. It needs to be really thought out comprehensively," he said, noting that there is a need to know the target market, whether it is offshore or local investors.

Moreover, bringing out the value-add of the bond would go a long way in making it attractive.

So far, offshore holders of local debt are around one per cent. "It could be higher because some of the offshore (investment) goes through banks."

For the local investors, Mr Ogutu said, the government could be targeting the billions stashed in dollar accounts.

"It might be a way of mobilising these foreign currency deposits...a way of getting them onboard."

But the investors will also be attracted by the return that they will be offered for the dollar-denominated bonds.

Currently, Kenya does not have a dollar-denominated local bond with the only forex coming through the infrastructure bonds, which tend to attract foreign participation.

As of the end of June 2022, non-residents had put about Sh2.5 billion in infrastructure bonds.

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