Treasury to strip central bank of power to auction bonds
From left: CBK Deputy Governor Haron Sirima and Treasury secretary Henry Rotich confer as IMF Kenya Resident Representative Ragnar Gudmundsson answers a question fielded by a journalist during a media briefing at The Treasury on September 4, 2013. DIANA NGILA
The Treasury plans to strip the Central Bank of Kenya the role of auctioning debt and keeping custody of government securities as part of ongoing public finance management reforms.
Treasury secretary Henry Rotich said institutional changes are required to give the ministry the capacity to handle the roles as proposed by the Capital Markets Authority following the unauthorised creation and sale of bonds worth Sh105 million.
“We are carrying out institutional reforms and the Debt Management Department is among those targeted. Ultimately, our plan is to manage debt issuance at the Treasury. But it is a gradual process,” said Mr Rotich.
Currently the Central Bank auctions the government securities in the primary market and also hosts the central depository system (CDS) for the instruments once issued.
In auctioning the debt, the CBK role as a monetary authority may be compromised by the fact that it sets interest rates, yet the government has a preference for low interest rates.
The Treasury Debt Management Department hosts the register of all public debt — both foreign and local —and gives instructions on the amount of cash it requires from the domestic market at any one time.
The resident representative of the International Monetary Fund (IMF), Ragnar Gudmundsson, said supervision and improving the integrity of the financial system was a key priority and should be performed from a regional perspective.
“We know the CBK has been carrying out some reforms especially where banking is expanding in the region. The financial sector, including banking, needs consolidated supervision in a regional context,” said Mr Gudmundsson.
Mr Rotich and the IMF boss were speaking at the Treasury Building when announcing an upcoming conference in Nairobi.
The Kenya government and the IMF are to co-host the conference set for September 17 and 18 to explore the policy challenges Kenya faces in building upon its economic success to achieve emerging market status.
The event will bring together participants from government, the private sector, civil society, and the development community with the goal of broadening the dialogue on the vision for Kenya’s future.
President Uhuru Kenyatta is expected to open the conference.
Kenya’s ongoing programme with the IMF with a loan package of $760 million ends next year. It has already drawn most of the money and is expected to begin talks with the multilateral lender for another lending plan any time.
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