The Kenyan shilling yesterday weakened to an eight-month low against the US dollar in what market watchers attributed to excess liquidity in the money markets and demand for the dollar from manufacturers and oil importers.
Analysts, however, said Monday’s announcement that the Treasury is about to issue a new Eurobond is causing a recasting of positions as markets prepare for a looming jump in external debt.
The shilling exchanged at an average of 101.73 units to the dollar in the interbank market, a level last seen at the end of February, having weakened against the dollar by nearly one per cent this month.
The shilling’s performance in the market is being seen as resulting from the negative sentiments on Kenya’s debt position and the ongoing flight of foreign capital back to the US where rates are rising.
The International Monetary Fund (IMF) last week downgraded Kenya’s risk of debt distress from low to moderate, and many observers see the looming Eurobond issue as having the potential to spook the market even further.
Treasury principal secretary Kamau Thugge told Bloomberg on Monday that the external financing bit of the budget deficit will comprise of up to Sh250 billion worth of Eurobonds, and Sh37 billion in syndicated loans.
“The shilling may be further undermined by weaker debt metrics after the IMF’s downgrade of the country risk of external debt distress from low to moderate,” said economists at Commercial Bank of Africa in a note.
The bank said the government’s plan to return to the Eurobond market for the bulk of external debt financing this fiscal year risks aggravating debt sustainability concerns given the potential for higher debt servicing costs.
The shilling’s depreciation in recent weeks has, however, not been characterised by volatility, suggesting that it is an issue of underlying fundamentals rather than speculative actions in the currency trading markets.