With $600m loan on the way, Uhuru exit fails to spook markets

A day after Mr Kenyatta resigned as finance minister, Treasury Permanent Secretary Joseph Kinyua announced the ministry was finalising a programme that will see the country borrow from international banks, with the results expected in a fortnight.

On Thursday, Mr Kenyatta resigned from Cabinet following the confirmation of charges by the International Criminal Court related to the 2007/8 post-election violence.

The ICC charged Kenyatta and three others with directing violent attacks, including murder, rape and forced displacement.

Kenya’s financial markets are waiting for the Treasury to release details of the $600 million syndicated loan even as traders study how the exit of former finance minister Uhuru Kenyatta will shape sentiments.

A day after Mr Kenyatta resigned as finance minister, Treasury Permanent Secretary Joseph Kinyua announced the ministry was finalising a programme that will see the country borrow from international banks, with the results expected in a fortnight. The plan is said to be undergoing scrutiny by the ministry’s tendering committee.

The EastAfrican had earlier reported that the Treasury was planning to hire foreign banks to market Kenya’s first dollar-denominated syndicated loan from foreign banks and the deal was ready for announcement.

Citibank, Standard Chartered of UK and Standard Bank of South Africa were to be the arrangers of this loan, forming a consortium of other foreign banks that would share a portion of the loan.

Mr Kinyua’s statement is expected to calm markets by ending uncertainty over Kenya’s borrowing programme for the current budget, which is below target and was worrying analysts and investors.

Mr Kenyatta resigned following the confirmation of charges by the International Criminal Court related to the 2007/8 post-election violence. The ICC charged Kenyatta and three others with directing violent attacks, including murder, rape and forced displacement, after a disputed presidential election that left 1,500 people dead and uprooted another 300,000 from their homes.

The change of guard at the Treasury and delays in rolling out the syndicated loan comes at a time when Kenya is struggling to finance a budget deficit of Ksh236 billion ($2.7 billion) — or 7.4 per cent of GDP.

The Treasury had planned to borrow Ksh119billion ($2.34 billion) from the Kenyan market. By December 2011, only Ksh14 billion ($164.7 million) had come in, Treasury statistics show, meaning the government has only five months to raise the balance to finance its planned expenditures.

News of Mr Kenyatta’s departure from the key docket nevertheless left markets unshaken, with the Kenya shilling closing the week firmer. Analysts had predicted the ICC announcement would hurt investor confidence in the Kenyan markets, causing a fall in the shilling and stock prices at the Nairobi Securities Exchange.

The gap in borrowing is one of the challenges new Finance Minister Njeru Githae will be grappling with, along with the growing deficit, spiralling inflation and managing the political bickering that has blocked the tabling and passage of the Finance Bill 2011.

Mr Kenyatta had late last year refused to table the Bill in parliament for fear MPs would introduce amendments that could cap lending rates.

With interest rates at nearly 25 per cent, the national debt has become very expensive to service, hence the decision to tap the foreign debt market. High interest and exchange volatility in the Kenyan market have made investors edgy, so they are demanding higher yields to compensate for risk. With many of them shying away, the Treasury has found it hard to push through its borrowing plan.

The $600 million syndicated loan will substitute part of what it planned to borrow from the domestic market this year.

Economists argue while Treasury has committed not to borrow from the local market for fear of stoking a further rise in lending rates, there is a risk the government could back-flip on its deficit financing policy, as it did last year.

In its March 2011 Budget Policy Statement, the government stated it would be lowering the domestic financing share of the budget deficit from 70 per cent to 40 per cent over the medium term, but later in the year it reversed its policy and raised its domestic borrowing requirement.