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Daily Nation : February 18th 2014
DAILY NATION Tuesday February 18, 2014 finance Tackle Eurobond cash dilemma, experts say Failure to absorb money raised could see the country’s debt soar to unsustainable levels, Kenya warned BY IMMACULATE KARAMBU @ikarambu T firstname.lastname@example.org ard Chartered Bank. Kenya is seeking to raise $1.5 he government has been advised to ensure there is enough capacity to absorb funds to be raised through the country’s first Eurobond. Failure to channel the funds to productive investment could see the country’s debt levels soar to unsustainable levels, Mr Razia Khan, Standard Chartered Bank’s head of research for the Africa region, has warned. The Eurobond is expected to be floated during the first quarter of this year. “There are a few countries which go to the market with a maiden bond of a similar magnitude as that Kenya has planned. The concern is that Kenya might be borrowing big when it does not have the capacity to invest the funds as planned,” said Ms Khan. She was speaking in Nairobi last week while addressing the press on the sidelines of an Africa summit organised by the Stand- billion (about Sh130 billion) from international bond markets. However, the amount could increase to a maximum limit of $2 billion, according to National Treasury cabinet secretary Henry Rotich. The finances will be used to settle part of the government loans and fund infrastructure projects in the country. The process of launching the first Eurobond, which was expected to be completed last year, was delayed by procedures involved in sourcing for lead arrangers. The government has since entered into an agreement with JPMorgan Chase & Co. to be the lead arrangers for the debt. The country will be seeking money from the international 130bn markets at a time when the government has laid down massive infrastructure development plans that, among other things, aim to increase supply of electricity and efficiency of the transport network. For instance, there is a plan by the government to put in place 5,000 megawatts of electricity generating capacity in 40 months starting September last year. This project involves under- Amount in shillings that the government seeks to raise from international markets in its maiden Eurobond to spur growth taking capital-intensive power generating investments by the government. There is also the ambitious plan to construct a standard gauge railway from Mombasa to connect Kenya to Uganda and Rwanda. The modern rail is expected to ease transport of goods and facilitate cross-border trade. But even with these develop- ment plans, questions have been raised on the rising levels of public spending on recurrent expenditure especially in the wake of the devolved system of government that has seen drastic increase in the public workforce. “Kenya needs to get to higher levels of public savings and investment. The sustainability of this will be tested once fiscal devolution fully takes place,” said Ms Khan. As an emerging potential producer of oil, Kenya’s maiden Eurobond is likely to attract in- vestors as export of the resource is expected to increase the country’s foreign income earnings and reduce the current account deficit. The World Bank predicts that the economy will grow by 5.9 per cent this year on the back of an increase in foreign direct investments (FDI). “In the high-growth scenario, the GDP is projected to increase 5.9 per cent in 2014. Investment is much stronger thanks to stronger domestic investment (both private and public) and greater than expected inflows of FDI,” said the bank in its latest issue of the Kenya Economic Update report. smart company 5 CONCERN » FUNDS WILL BE SPENT ON SERVICING GOVERNMENT LOANS AND FINANCING INFRASTRUCTURE PROJECTS FILE | NATION President Kenyatta (centre) and his deputy William Ruto launch the construction of the standard gauge railway. Part of the money raised through the Eurobond will be used to build infrastructure.
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