Kamau Thugge plans dollar bond to ease pressure on shilling

Nominee for the governor of the Central Bank of Kenya Dr Kamau Thugge before the Departmental Committee on Finance and National Planning at County Hall for vetting on May 30, 2023. PHOTO | DENNIS ONSONGO | NMG   

By EDWIN MUTAI More by this Author

The Central Bank of Kenya (CBK) governor nominee Kamau Thugge plans to float a

local dollar-denominated bond to get rich Kenyans who are holding over Sh1 trillion in deposits to release the greenback in fresh efforts to ease pressure on the Kenya Shilling.

Dr Thugge said he will work with the National Treasury to issue the dollar bond with attractive returns to get rich locals and businesses to release their fixed deposit accounts in local commercial banks.

Read: Dollar breaks above Sh145 as market ignores CBK rate

“I will work with the National Treasury on the possibility of issuing a dollar-denominated bond and bills,” Dr Thugge told a parliamentary vetting panel in Nairobi on Tuesday.

“If we can get Kenyans holding dollars in deposit accounts to release them by buying into the bond, then we will have the possibility of increasing liquidity of dollars in the system and this will help us in building up foreign exchange reserves at the CBK.”

Appearing before the National Assembly’s Finance and Planning committee, Dr Thugge said the CBK and the Treasury will seek to encourage Kenyans in the diaspora to invest in the dollar bond as a way of increasing inflows into the country.

CBK data shows that foreign currency bank deposits hit a historic high of Sh1.06 trillion in March as individuals and big companies sought a safe haven for their wealth.

“These are the things I would like to do as soon as I get into that office. We will sell the dollar-denominated bonds locally like Treasury bonds and bills so that the government offers a good rate of return. This will cause availability of dollars in the local financial system,” Dr Thugge told the panel during vetting.

Dr Thugge told the committee chaired by Kuria Kimani that the State-backed government-to-government oil importation deal with Saudi Arabia had removed the demand of $500 million per month.

Kenya and Saudi Arabia inked a deal that saw Saudi Aramco finance the shipments or provide the product with an extended credit period and Nock will pay within 60 and 90 days.

The freefall of the shilling is despite the existence of a government-backed deal to import fuel on credit from the Gulf nations, which was meant to reduce the demand and arrest the depreciation.

Investors, however, have continued to open foreign currency-dominated accounts in the hope of making gains from the sharp fall in the shillings against major currencies like the dollar and the pound.

This is even as the IMF noted that the forex interbank market, which for long had been dysfunctional, has improved.

Part of IMF’s conditions for the Sh484.9 billion ($3.52 billion) programme is for Kenya not to tinker with the exchange rate but instead let it act as a shock absorber.

The dollar shortage had forced industrialists to start seeking the US currency daily and from several lenders for their monthly hard currency needs as the scarcity put a strain on supplier relations and the ability to negotiate favourable prices in spot markets.

If approved by Parliament to take over the CBK corner office from Patrick Njoroge, Dr Thugge said his top priority will be to tame runaway inflation.

“I will focus on the issue of inflation. I know the CBK is fine-tuning a modern monetary policy framework,” he said, adding that inflation is projected to decline from 7.5 percent in May and June 2023.

“I also want to improve bank supervision because we need to see what is going on within the banks on a real-time basis.”

He said Kenya has strong and weak commercial banks and, therefore, the need to consolidate lenders through mergers and acquisitions.

Read: Central Bank in the spotlight as lenders run out of dollars

“In 2013, we proposed to have a more resilient financial sector by reducing small weak banks and have them merge with strong ones,” he said.

“If I become the CBK governor, this is one area I will pursue in order to have strong banks that have liquidity buffers that can expand in the region and lower interest rates as they compete with one another.”

He said the Treasury is working to lengthen the maturities of debt which currently stands at Sh9.4 trillion.

Dr Thugge, who put his net worth at Sh450 million says he was wrongly charged over the Sh63 billion Arror-Kimwarer dams scandal.

Dr Thugge, the nominee for the Central Bank of Kenya (CBK) governor, told Parliament that the Director of Public Prosecutions (DPP) charged him on matters that were completely far away from the Treasury.

“It is true I was wrongly charged on matters that belonged in completely other Ministries and State departments and were very far away from the National Treasury,” Dr Thugge said when he appeared before the National Assembly’s Finance and Planning committee for vetting.

“The DPP Noordin Haji looked at the charges and dropped them and made me a State witness. I believe the matter is still active in court and I will follow the law. Whatever happens in court going forward I shall comply.”

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