In 2021, the Kenya pension funds recorded the highest amount lent to the government compared to the preceding years. The National Treasury also issued long-term bonds consistently to the government during the same year.
Here are some Statistics:
- The Central Bank of Kenya (CBK) increased its government debt holdings from $1.8 billion to $11.05 billion within 12 months. On the other hand, those of banks went up by $1.55 to $17.9 within the same time frame.
- The percentage increased from $30.63 billion in January to $35.53 billion in December for domestic public debt. The pension funds share rose from 30.3 to 31.3. Banks, on the other hand, dropped from 53.3 to 50.3 percent within the same period.
Floating of Bonds
Since pension funds are accumulated for years in one’s lifetime, the treasury found it best to align them with long-term bonds rather than when taken to banks for short-term deposits. Patrick Njoroge, the Governor of CBK, said that the maturity period of treasury bonds has increased from the usual 7.5years to 9 years.
The government has also reduced the amount of debt taken as short-term treasury bills from 24.6 percent to 18 percent to maximize their stability. Banks will no longer be using treasury bills for liquidity management. This will really help to increase the core mandate of the government’s borrowing program.
With all these, the pension funds have also sought to convert more public projects into Investments. Some months ago, a consortium of 18 pension funds wanted to invest over $263.3 million in the public partnership (PPP). Their main objective was to diversify their portfolio and generate more returns for their pension profiles.
Kenya Pension Funds Identification of Infrastructure for Long-Term Investment
Recently, the Kenya Pension Fund Investment Consortium stated that it has identified over 17 infrastructure projects that are fit for investment. The infrastructure, which includes roads, housing, water, and energy, was introduced to lengthen the maturity profile of debts and increase the benefits of pensions. According to the consortium, pension funds can put up to 10 percent of their investments in infrastructure.
The chairman of KEPFIC also said that they are considering firms like World Bank and GuarantCo to assure projects. They want to get value for their investments, and that is why they need to guarantee that the contractors will pay them on time. Some of the pension schemes that have been considered include; Safaricom, Kenya Revenue Authority, KenGen, Kenya Power, and Stannic, among others.
In countries like Brazill and Mexico, pension investments are a significant source of income. Kenya is also coming up strongly; in June 2021, The Kenyan Pension Sector had unlocked up to $12.97 billion for asset funding-a, a sign that they already have the potential to invest.
Due to COVID 19, bonds have increased demand due to lower returns. Investors like educational institutions and private companies prefer bonds compared to other investment opportunities. Their state debt holdings have increased by $868.9 million to $2.18 billion. Insurance companies saw their holdings at $2.4 billion while parastatals added a debt stock of $210.6million, which sums up to $1.94billion.
In Summary
Government bonds have always been a safe investment but profitable investment. With the treasury consistently offering long-term bonds to the government in the past year, it was expected that the Kenya Pension Funds would invest in them.
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