Kenya's Treasury and the Central Bank of Kenya (CBK) are at odds over the establishment of a new bond trading platform.
The East African Bond Exchange (EABX), which received its operating license from the Capital Markets Authority in February 2023.
While the Treasury supports this alternative to the Nairobi Securities Exchange (NSE), the CBK has blocked its launch by denying it electronic access to the central securities depository, citing concerns about market distortion through dual pricing of bonds.
The Treasury's support for EABX is rooted in a 2009 agreement among industry stakeholders to establish a self-regulating organization for the fixed income market, aiming to enhance trading transparency and efficiency.
CBK's resistance stems from concerns about dual pricing and yield curve complications, which could jeopardize market stability, while EABX promoters, including commercial banks, expect more liquidity and direct trader interaction.
This power struggle between the Treasury and the CBK also includes proposed legal amendments that would change the structure of Kenya's debt market.
Treasury is seeking to strip the Central Bank of its role in selling government bonds and Treasury bills.
The Cs Mbadi Led Ministry is proposing that the Public Debt Management Office (PDMO), a Treasury department, take over the issuance of government securities.
The move, which faces resistance from CBK, aims to reduce the State's borrowing costs below 10 percent.
It would also bring Kenya's system closer to the US model, where the Treasury handles government securities while the Federal Reserve focuses on monetary policy.
As of January 14, Kenya's domestic debt stood at Sh5.89 trillion, with Treasury bonds accounting for 85.25 percent (Sh4.88 trillion) and Treasury bills at 14.75 percent (Sh844.84 billion).
The Treasury plans to elevate the PDMO to a State Department with its own budget and greater autonomy in debt management, including the power to approve or reject loans and determine borrowing costs during primary auctions.
Central Bank of Kenya has already stopped using placing agents for selling government securities, eliminating the 0.15 percent commission previously paid to stockbrokers, custodian banks, and authorized securities dealers.
Will this centralization of debt issuance under the Treasury lead to more efficient borrowing, or could it potentially undermine the checks and balances necessary for sound fiscal management?