The World Bank (WB) wants Kenya to set up an electronic trading platform for issuance of government securities in order to strengthen debt management and ensure prompt settlement of transactions.
WB Country Director for Kenya Felipe Jaramillo says in the latest Country Economic update that this could also help in improving liquidity in the market.
“Adopting an electronic platform could improve the primary auction of government securities. This could promote transparency and enhance efficiency in the management of government debt,” says the WB in the report.
“Adoption of this technology could, for instance, hasten the settlement period after every auction and reduce liquidity management challenges.”
The primary auction of Treasury bills and bonds is part of the channels through which government raises money to finance its spending plans but sometimes there are delays in the settlement period.
The Kenyan government committed to a prudent management of public debt as articulated in its regularly published Medium Term Debt Management Strategy.
But WB says that for this to be realised, government will have to strengthen the institutional framework for cash and debt management including adoption of this platform.
Developing transparent and vibrant local currency bond market is seen as a way of spurring significant interest from foreign investors and potentially reduce country borrowing costs. In financial year 2018/19, the split or ratio between external and domestic debt in the total debt stock was about 51:49.
“However, reflecting higher domestic interest rates, debt servicing charges on the domestic debt stock are about three times higher than from the external debt stock,” notes the multilateral institution.
The Washington-headquartered institution had said in its previous report last year that there is low transparency and accountability in the bond market and this has kept away many foreign investors.
It added that Kenya attracts far fewer foreign investors into its local currency bond market relative to Nigeria, Egypt, Ghana and South Africa, even though it has grown very rapidly.
With a growing inclination towards foreign debt, the WB adds that a clear communication strategy on the government’s preparedness to tackle upcoming debt repayments remains critical to sustaining market confidence.
“Debt management strategy could also focus on rebalancing the mix of expensive and shorter maturity commercial loans,” the WB advises.
This, it says, could be done through taking advantage of concessional debt, which is more affordable and with longer maturity profiles.