Greetings and welcome to the sixth Money Weekly Roundup of 2024! 

This week, the Shilling has been dramatically rallying against the US Dollar with over 10% appreciation against the greenback. It has now moved from being second-worst performing currency in Africa to the strongest so far in 2024. But what has caused this? 

Meanwhile, the country secured a USD1.5 Billion Eurobond that was oversubscribed with USD5.4 billion offered by investors at a staggering 10.375% yield rate. The money is meant to buy back the USD2 billion 2014 Eurobond that is maturing in June. 

As always, we’ve included some of our favourite personal finance articles in our finance tips section below.

Let’s dive in!

NEWS RECAP

What happened this week

 😮Why is the Kenya Shilling Gaining Against the USD?

The Kenya shilling has made a significant recovery against the US dollar in recent days, surprising many who anticipated further depreciation. 

This resurgence is attributed to substantial inflows of dollar-denominated support, including disbursements from organisations like the IMF and the Trade Development Bank. 

The strengthening of the shilling is further buoyed by increased confidence in the currency, leading to a surge in demand and a decrease in hoarding of the US dollar.

Reasons for Recovery:

• Experts attribute the shilling's gains to increased dollar liquidity.

• Inflows of USD684 million from the International Monetary Fund (IMF) on January 18.

• Disbursement of USD385 million from the Trade Development Bank on January 24.

• Additional support expected from the African Development Bank with a disbursement of USD88 million.

• Government sold a Ksh70 billion infrastructure bond, receiving over Ksh288 billion bids and strong offshore investor participation.

• A new USD1.5 billion Eurobond maturing in 2031 was sold, easing investor fears over the resolution of the USD2 billion Eurobond due in June.

• Inflows have reduced incentive for investors to hold onto the US dollar.

Impact on Currency Value:

• Shilling strengthened from Ksh161 to Ksh153 against the US dollar in just 3 days

• Market responded with increased supply of dollars and reallocation of capital by foreign investors. 

• At some point, the Shilling had strengthened to 139 against the dollar triggered by panic selling, but pulled back to 141 after CBK intervention.

• The CBK intervened as the shilling surged, buying dollars to curb volatility.

Market Dynamics and Expert Analysis:

• Experts foresee a short-term rally, projecting stability around 140 in the upcoming quarters.

• Cautious optimism persists due to uncertain macroeconomic fundamentals.

• Analysts' views generally point to potential further gains for the shilling, though uncertainties remain regarding exchange rate equilibrium and potential CBK interventions

• Recent bond sales and offshore investments, however, fuel optimism for currency stability.

• CBK maintains its stance on stabilising currency with gradual interventions.

💰Kenya Pays Dearly in New Eurobond Issuance

Kenya has raised a new USD1.5 billion Eurobond to raise funds to buy back the USD2 billion 2014 Eurobond set to mature on June 24 this year.

The new 6-year loan has a yield rate of 10.375% which is significantly higher compared to Benin’s 14-year Eurobond issued at 8.375% and Ivory Coast’s 8.5%. 

The remaining part of the maturing loan that had a yield rate of 6.85% will be funded through a mix of government funds and financing from multilateral and bilateral sources, including bank syndication. Read More.

In Summary:

• Amount: USD1,500,000,000

• Gross proceeds: USD1,459,050,000

• Coupon: 9.75%

• Price: 97.27% original price discount

• Pricing date: Feb 12th, 2024

• Maturity date: Feb 16th, 2031

• Yield: 10.375%

• Interest payments: Semi-annually on February 16th and August 16th of each year commencing August 16, 2024

• Redemption: Three equal instalments of USD500 million on February 16, 2029; USD500 million on Feb 16, 2030 and USD500 million on February 16, 2031. 

🏥2.75% SHIF Deduction Starts March 1

The monthly 2.75% Social Health Insurance Fund (SHIF) contributions will start this coming month on March 1. SHIF is the government’s new initiative to replace the National Health Insurance Fund (NHIF) in order to provide Universal Health Care (UHC). Read More. 

Expected changes in contributions by monthly salary: 

• Ksh30,000 and below: A drop of between 3% and 45% in contributions.

• Ksh30,001 to Ksh100,000:  An increase of between 1% and 77% in contributions.

• Ksh100,000 - Ksh500,000: An increase of up to eight times their current NHIF amount, for some.

Approximately 54% of Kenyans will contribute Ksh300 with the elderly and people with disabilities receiving free services covered by the government. The transition from NHIF to SHIF is expected to be completed in December.

However, Citi and Standard Group, advisors on Kenya's Eurobond redemption, caution that funding the new universal healthcare plan could strain the state's expenditure plans, potentially adversely affecting the economy. Read More.

🚗Price of Second-Hand Cars Surge as Imports Drop

Over the past four months, the prices of second-hand cars have surged by as much as Ksh600,000. Provisional data from the CBK and the KRA indicate a $162 million (Ksh25 billion) reduction in spending on car imports by Kenyans. 

This has led to a growing trend among car buyers to opt for locally used units that exceed eight years in age, which is the import limit. Read More.

🥑10x Growth in Kenyan Avocado Exports to China

The quantity of avocado exports to China surged tenfold reaching 4.3 billion tonnes in 2023 as compared to just 443 million tonnes in 2022. The first avocado export to China was made in 2022 unlocking a huge market for Kenya. 

In 2023, Kenya also made its first export to India. The Avocado Association of Kenya anticipates that the European market will continue to be Kenya’s biggest market. This is as the Fresh Produce Consortium (FPC) is urging farmers to take advantage of the Qatar market to ease pressure on Dubai, which it described as oversaturated. Read More.

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MONEY TIPS & TOOLS

This week’s finance tips

Welcome to Money254's Money Tips! Here, we share quick and easy tips that make understanding and managing your money a breeze. We break down the tricky parts of your finances and the financial landscape, making it simple and clear for you. Stay tuned for helpful tips every week.

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Living in the Wrong Neighbourhood

Your surroundings play a significant role in shaping your experiences, and sometimes, it's essential to recognize the signs that may indicate you're residing in the wrong neighborhood. That’s what we are talking about in this week’s video to help you make informed decisions about your well-being and financial future.

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3 Signs You Are Living in the Wrong Neighbourhood #Money254 #neighborhood #kenyantiktok #Fyp #Moneytok #Personalfinance #reels__tiktok

That’s a wrap for this week’s Money Weekly!

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Eric and the Money254 editorial team.