Govt says Kenya Eurobonds affecting forex

Ggoobi, who is also secretary to the Treasury, says Kenya issued a Euro bond of about $1.5 billion and is trying to raise $2 billion for the bond maturing in June this year.

KAMPALA | The Permanent Secretary at the Ministry of Finance and Economic Planning, Ramathan Ggoobi, has attributed the depreciation of the Shilling to external factors, including Kenya's Eurobonds and Ghana’s re-entry into the capital markets.

Ggoobi, who is also secretary to the Treasury, says Kenya issued a Euro bond of about $1.5 billion and is trying to raise $2 billion for the bond maturing in June this year.

He further explains, Kenya issued a seven-year bond at 10.375 percent on the Dollar, a double digit coupon rate, the highest priced bond in the world this year.

Ggoobi's comments follows public outcry over the depreciating Shilling against the Dollar over the last few weeks.

This attracted most of the portfolio investors to Kenya in the past few weeks and this deprived the Ugandan market of some dollars.

On top of That, Kenya also issued an infrastructure bond almost in the same period to raise KShs70 billion at 18.75 percent, again one of the highest infrastructure bonds because these are tax free infrastructure bonds which you pay no tax buying, thus very attractive and in so doing, some of the investors liquidated their money here in Uganda and go to Kenya to purchase the infrastructure bond.

This led to a high demand for the dollar in the Ugandan market the PSST confirms.

Ggoobi assured Ugandans that this is a temporary shock which may not likely Stretch to June when the Kenya Eurobond matures.

He says with a floating exchange rate market system and open capital account, its more likely that as the exchange rate increases, people may want to supply their dollars to earn from the high exchange rate, while those demanding for the dollar are likely to reduce their appetite because of the dollar cost and within a few weeks, there is likely to be stabiliwation of the exchange rates.

“Although Its pass through effect is yet to be fully felt, there is likely to be an increase in price of imported goods which can slightly increase our inflation which had stabilized below the target rate at 2.8 percent as for January,” Ggoobi asserts.

He says this will not cause significant damage because the other fundamentals have been dealt with.

As for government planned payments through the period, Ggoobi says Usually the foreign exchange risk is always factored in the planning .

The Treasury chief emphasises the market dynamics will sort out the forex volatilities stressing that importers will pay the full price of the shilling depreciation and should not expect government to subsidize them, but the exporters will rather gain as the exports will become cheaper to the buyers .

In response to this forex volatility, the central bank and government have had to withdraw some money from circulation or restrict release of monies.

For Example, whereas government had programmed to release over Shs9 trillion, only about Shs5 trillion has been released, almost half of what was planned if prices were stable.

Ghana’s return to the capital markets with issuance of a bond has has also attracted some good level of investment to the country.