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KENYA REVIEWS ITS MEDIUM TERM DEBT MANAGEMENT STRATEGY

Kenya’s economy grew at a robust pace over the last decade (2004 – 2015) with real GDP growth averaging 5.5% per annum. The growth was supported by public investments in infrastructure projects particularly road construction and geothermal energy generation and distribution; buoyant private credit growth; and strong consumer demand. The public investments are to a large extent financed through both domestic and external borrowing.

Consequently, Kenya’s public debt increased to about US$28 billion, equivalent to about 49%of GDP as at end-June 2015. This development is associated with the increase in average cost of borrowing and exposure to risks as the country’s access to concessional external financing is limited going forward following Kenya’s reclassification into lower middle income status. Thus, strengthening capacity at the National Treasury’s Debt Management Department is a priority.

In this regard and at the request of the National Treasury of Kenya, a joint World Bank-IMF-MEFMI mission visited Kenya during the period January 25 to 10 February 2016 to help build analytical capacity to execute a structured approach to debt management strategy formulation. The mission team comprised IMF officials Ms Eriko Togo, Ms. Perez and Mr. Robert Andreoli; officials from World Bank Ms. Lilia Razlog, Mr. Emre Balibek and Ms. Signe Zeikate; and MEFMI Programme Manager Lekinyi Mollel.

The objectives of the mission were to train officials on the formulation and implementation of a medium term debt management strategy (MTDS); and to assist the National Treasury develop the MTDS that would inform policymakers in their borrowing decisions for the period 2015/16 – 2018/19. The workshop participants were drawn from the Debt Management, and Budget, Fiscal & Economic Affairs departments in the National Treasury, as well as from Financial Markets and Research departments of the Central Bank of Kenya (CBK). A total of 15 officials attended the workshop, of which eight (8), representing 53% of the total were female.

The mission activities were in two key segments: (i) training of officials on the development and implementation of the medium term debt management strategy using the MTDS – Analytical Tool (AT); and (ii) assist officials to develop the country’s debt management strategy for the period 2015/16 – 2017/18. The outcomes for the mission were:
• Participants gained knowledge and practical skills for designing a debt management strategy using the MTDS-AT.
• A draft mission Aide Memoire was produced and shared with authorities for their preliminary comments.
• Kenya MTDS for the period 2015/16 – 2018/19 was developed and was approved by the Cabinet and thereafter submitted to the Parliament.

To facilitate effective implementation of the MTDS, the following were proposed:
• Development of an annual borrowing plan covering all financing.
• Implementation of liability management operations such as exchange auctions for new and longer-tenor benchmarks in position of debt instruments whose remaining time to maturity is less than 2 years.
• Development of investor relations and market communication strategy to facilitate general information and data dissemination to the investor base and the wider marketplace.
• Deepening of the domestic debt market to improve efficiency of the primary issuance process and price discovery in the secondary market.