The Central Bank of Kenya is issuing a 5-year Sh50 billion bond for budgetary support. African countries are implementing measures to ensure continuous inflow of money into the country. However, these measures are not fully working especially with banks parking their funds in government bonds, media reports said.
Sub-Saharan Africa’s GDP is expected to shrink 1.6 percent this year. This is primarily because of the impact of the ongoing pandemic and the subsequent slowdown in the economy. It is imperative for banks to hold a certain amount of premium liquidity assets such as government securities. But countries such as Nigeria, Kenya, and Ghana have opposed lenders for not doing so.
It appears that Kenyan lenders are subject to the risk of reduced deposits. Recently, the International Monetary Fund (IMF) approved $1.23 billion of emergency funding for Kenya and Uganda, media reports said.
The IMF in a report said, “The impact of Covid-19 on the Kenyan economy will be severe. It will act through both global and domestic channels, and downside risks remain large. While the authorities have taken decisive action to respond to the pandemic’s health and economic impacts, the sudden shock has left Kenya with significant fiscal and external financing needs. Authorities have committed to resume their fiscal consolidation plans once the crisis abates to reduce debt vulnerabilities.”
The central bank has already adopted several measures to ensure sufficient liquidity is maintained in the financial sector. This way, the central bank will be able to support the Kenyan economy and the overall financial sector.