NAIROBI, May 24 (Xinhua) -- Kenya is planning to float a sovereign green bond to partially plug the 2018/2019 budget deficit, a government official said on Thursday.
Kamau Thugge, Principal Secretary of the National Treasury, told a media briefing that next year's fiscal deficit will be 5.7 percent of Gross Domestic Product or approximately 5.8 billion U.S. dollars which will be funded equally between domestic and external funding.
"We are still yet to determine the time and size of the green bond but its proceeds will be used to fund the green infrastructure projects that have been identified. We hope that the issuance of the sovereign bond will be before end of 2018 so that Kenya can benefit from the environmentally sustainable development as soon as possible," Thugge said during the Green Bond Stakeholder Consultation Forum.
The day-long event brought together government officials and investment bankers to review ways to develop the Green Bond market in Kenya.
Nigeria became the first African nation to float a green bond when it issued a 30 million U.S. dollars bond in 2017.
Thugge said Kenya will create a special purpose vehicle which will manage the disbursement of the funds to ensure they meet international green standards.
Some of the projects eligible for green bonds include renewable energy, climate smart agriculture as well as promotion of low-carbon and green commodities.
Thugge said that in order to encourage the issuance of green bonds in the country, the government plans to extend fiscal incentives to the green finance sector.
"Green bonds will not attract Value Added Taxes, duties while the interest income will be exempted from income tax," he said.
The East African nation already has a number of policies and frameworks to encourage the switch to low carbon development.
He said Kenya is championing the use of green finance in order to accelerate the achievement of the Sustainable Development Goals.
He noted that Kenya's economy relies heavily on natural resources in the agricultural, water and energy sectors that are dependent on weather patterns making Kenya very vulnerable to the impacts of climate change.
Thugge said Kenya is committed to achieving economic development without engaging in environmentally degrading activities such as pollution and deforestation.
The Capital Market Authority (CMA) and the Nairobi Securities Exchange (NSE) have already issued Kenya green bond guidelines.
NSE is also planning to introduce a green bond segment in the fixed income securities category to accommodate green finance investment.
Paul Muthaura, the CEO of CMA, said it will monitor the use of proceeds from the green bonds to ensure they comply with the Green Bond Principles as well as Climate Bonds Standard.
Peter Odhengo, Senior Policy Analyst at the National Treasury, said the National Policy on Climate Finance will provide guidelines on how Kenya's private sector can participate in the green bond market.
Odhengo said green bonds differ from convention bond due to need for coding, tracking and reporting framework to ensure that proceeds of the bonds are invested in conformity with strict guidelines.
He said government will partner with international experts to conduct training and sensitization in Kenya due to the complex climate finance landscape of green bonds.
The Treasury official noted that Kenya recognizes the need to use green bonds to mobilize private sector capital to finance climate resilient investments.
He said additional reporting obligations are required for green bond issuers to ensure that proceeds are allocated to green assets.
Olumide Lala, the Africa Program Manager at the Climate Bonds Initiative, said so far globally there have been 2870 individual issuances of green bonds worth approximately 380 billion U.S. dollars.
Lala noted that Africa is lagging behind the rest of the world in the issuance of green bonds due to low volume of bankable projects.
