East Africa markets round up

The East African region is facing a challenging economic landscape, with public debt levels on the rise and efforts to control mounting wage bills underway. CNBC Africa recently interviewed Kaneja Amani, Global Markets Trader at Standard Bank Group, to delve deeper into the current financial situation in East Africa. Amani emphasized the importance of monitoring domestic borrowing numbers in national budgets, highlighting the impact of government control over domestic debt. While external borrowing can expose countries to risks related to foreign currency fluctuations and higher interest rates, domestic borrowing allows for more stability and control over funding sources. Amani particularly pointed out the need for East African governments to manage domestic debt effectively amidst ambitious development projects, urging a more strategic approach to investment decisions. As countries in the region strive to balance economic growth with debt sustainability, the management of domestic borrowing will play a crucial role in shaping future financial stability. Discussing the specific case of Kenya, which has seen a significant increase in public debt, Amani acknowledged the challenge of curbing spending while pursuing large infrastructure projects. He cautioned against excessive borrowing for projects that may not yield substantial economic returns, advocating for a more prudent allocation of funds to ensure long-term financial viability. This balance between investment in development initiatives and debt sustainability remains a key concern for East African countries as they navigate complex economic challenges. Turning to recent developments in the Ugandan market, Amani highlighted the innovative approach taken by the government through a bond switch auction. By strategically managing the maturity profile of existing bonds, Uganda aims to optimize its debt structure and enhance market liquidity. This proactive approach to debt management reflects a growing trend towards financial innovation and optimization in the region. Amani anticipated an increase in long-end bond yields following the auction, signaling market responsiveness to debt restructuring initiatives. In terms of the broader outlook for East Africa's fixed income market, Amani discussed the varying dynamics in countries like Kenya, Uganda, and Tanzania. While Kenya has witnessed a significant rise in bond yields, presenting attractive opportunities for local investors, currency volatility remains a key factor for offshore investors. Amani highlighted the favorable conditions for offshore investment in Uganda, driven by liquidity and cost of funding considerations. He also noted the need for yield adjustments in Tanzania to remain competitive within the region's bond market. Overall, the East African fixed income market presents a diverse landscape with unique opportunities and challenges for investors across different countries. On the currency front, Amani shared insights into the recent movements in the Kenyan and Ugandan shillings against the US dollar. While currency depreciation can have varying implications, Amani emphasized the potential benefits of a weaker local currency in enhancing export competitiveness. He highlighted the importance of aligning currency stability with economic fundamentals and market dynamics, especially in a region heavily reliant on exports. Amani pointed to the gradual depreciation of the Tanzanian shilling as a positive adjustment to external market conditions, while cautioning about the potential impact of IMF-related developments on the Kenyan shilling. Despite currency fluctuations, East Africa's currency stability remains a key focus for policymakers and investors seeking long-term financial sustainability.