This archive report was first published on 7 May 2020.
On May 7, 2020, George Bodo warned that the Kenyan government's plan to roll over interest payments on existing Government securities could have severe consequences.
The private pension industry, which currently sits on assets worth over Sh1.0 trillion, had offered to roll over interest payments for a limited period. However, this move amounts to a reverse default by the Kenyan government, introducing an element of credit risk on all government debt.
According to Bodo, this move could trigger a sovereign credit ratings downgrade and slow down the secondary bond market. It would also present liquidity challenges for pension funds with annuity products.
Instead, Bodo suggested that the government issue a special edition coronavirus local currency bond with zero-coupon, with the tenor based on the government's own projection of post-coronavirus economic bottom-out. Pension funds could then invest in this bond on a pro-rata basis.
Furthermore, Bodo proposed that the Central Bank of Kenya (CBK) play a role in bailing out the fiscus to the tune of Sh150 billion. Section 46 of the CBK Act allows the apex bank to make direct advances to the national government for offsetting fluctuations between receipts from the budgeted revenue and payments of the government.
However, Bodo noted that the advance is conditioned that it is secured by negotiable securities with a maturity of not later than 12 months. He suggested that Parliament amend the Act to extend the tenure and increase the cap to beyond five per cent of audited revenues.
