Markets & Finance

Treasury to receive funds for building railway in 2 weeks

treasury

Pedestrians walk past the National Treasury building in Nairobi. The Treasury did not reveal the amount of money it expects to receive from China in the first tranche. PHOTO | FILE

The Treasury expects to begin receiving funds from China for the construction of the Standard Gauge Railway (SGR) within two weeks, promising a fresh injection of foreign currency into the economy which could ultimately help shore up the local unit.

Speaking on Friday following the launch of the Capital Markets Authority (CMA) master plan in Nairobi, Treasury Secretary Henry Rotich said that Kenya had met nearly all the requirements for the money to be released.

He said that only ‘‘one or two’’ requirements must be met and that Treasury was expected to bringing in the money at the first opportunity.

Mr Rotich did not reveal the amount of money the Treasury expects to receive in the first tranche although it could be substantial.

“We are finalising what we call the condition precedents, which we have to meet and after which we can draw down the money. I expect we shall be done in a short period of less than two weeks,” said Mr Rotich.

He added that the disbursements, which will add substantially to Kenya’s foreign debt portfolio, are one of the reasons for seeking approval to raise the foreign debt ceiling from Parliament.

“The drawdown is part of the commitments that we have with foreign partners over the next three to four years since the building of the railway will be spread over the period,” said Mr Rotich.

In addition to firming up the railway building work, the inflows will also be welcome news for the Kenya shilling which has been under pressure in the past few months from a strengthening US dollar.

Conversion of the SGR funds to local currency— similar to that of the Eurobond proceeds which was done in September — will boost the Central Bak of Kenya’s dollar reserves, giving the regulator more muscle to support the shilling and react to shocks.

The move will also reassure the money market that CBK has enough resources to support the currency, hence discouraging speculative trading.

“The next big source of help for the shilling should come from SGR inflows once they start coming in,” said Commercial Bank of Africa senior dealer Joshua Anene.

Under pressure

The shilling has been under pressure from reduced forex inflows even as demand for dollars from manufacturers and for financing capital equipment purchase for large projects grows, although it has met a resistance level of between Sh90 and Sh90.50 units to the dollar through CBK support from sale of dollars and liquidity mop-ups.

The purchase of the bulk of Eurobond proceeds by CBK, from the Treasury, pushed up reserves by more than $1 billion (Sh89 billion) to an all-time high of $7.4 billion (Sh652.9 billion), from the previous $6.3 billion (Sh560.7 billion).

The reserves have however reduced to $7.01 billion following settlement of debt commitments and some sales of dollars to the market in support of the currency.

Even as the country awaits the drawdown of the China financing, it has already started spending on the SGR project through internally sourced funds.

The Kenya Railways Corporation said late October that it would begin to distribute half of the Sh10 billion to be paid to landowners whose property was acquired for the railway line.

Managing director Atanas Maina announced on October 28 that Sh5.5 billion would be wired to the accounts of 2,000 landowners in Kwale, Taita Taveta, Makueni and Kajiado.

A week ago, an International Monetary Fund (IMF) team to Kenya said that the start of construction of the railway would stimulate the economy and contribute to gross domestic product (GDP) growth by nearly seven per cent in 2015.

READ: IMF chief salutes Kenya for mega rail and road projects

Construction of the railway between Nairobi and Mombasa is expected to create over 30,000 jobs for locals, in addition to payments to landowners.

Apart from land acquisition cash, the State has pledged that at least Sh130 billion, or 40 per cent of the project’s contract price, will be spent directly in the local economy.