Economy

Pension funds to raise State lending with rollout of longer tenor

rotich

Treasury secretary Henry Rotich. FILE PHOTO | NMG

Pension funds are set to significantly raise their investment  in government securities after the planned rollout of longer-term domestic debt instruments, Treasury secretary Henry Rotich says.

Mr Rotich has indicated in his three-year debt management strategy that the government will go for medium to long-term investors as opposed to short-term lenders.

Treasury bonds with tenures of 15 to 30 years are likely to dominate the State’s domestic borrowing plan in the medium term as part of plans to ease mounting pressure linked to fast-maturing debt contracted in recent years.

“Pension funds are a potential source of domestic finance. It is expected to continue to show resilience over the medium term, with issuance of 15 to 30 years tenures in domestic debt market,” said Mr Rotich.

He added that introduction of products such as post-retirement medical schemes and asset classes such as real estate investment trusts (Reits) is “expected to see industry grow in future and hence make the sector more vibrant”.

Commercial banks, which prefer short- to medium-term debt facilities, control more than half of government’s domestic debt at 54.4 per cent as at February 2, Central Bank of Kenya statistics show.

READ: How pension funds can help relieve Kenya’s debt burden

Pension schemes account for about 27.8 per cent share, while parastatals and insurance firms have a stake of 6.9 and 6.4 per cent, respectively, in government’s domestic debt which stood at nearly Sh2.25 trillion at the beginning of the month.

Citibank chief economist for Africa David Cowan said pension funds were ideal investors in medium- to long-term government securities because of Kenya’s young working population.

“You have a very young population that’s going to get old and want to get pension in 20, 30 years,” Mr Cowan said in an interview. “If you are running a pension fund and ideally you are buying a one-year Treasury bond, that’s just ridiculous. That’s not where your liabilities are, your liability is in developing your country.”

The Retirement Benefits Authority rules allow pension schemes to invest 90 per cent of their assets, with window of up to 100 per cent, in government securities within East African Community bloc.