The National Treasury Building in Nairobi. Figures by the Central Bank show that the domestic debt declined to Sh1.245 trillion on maturity of a raft of debt instruments. FILE PHOTO |
What you need to know:
Domestic debt last dropped that low at the end of June when it stood at Sh1.25 trillion.
Even with declining domestic debt, the country’s total debt is likely to keep rising when external borrowing is included due to the Eurobond and the standard gauge railway loans.
With the economic rebasing, however, the debt to GDP ratio is going to decline from the previous 57 per cent, improving the country’s debt profile, which makes it easier to access external debt.
The government’s domestic debt has declined to Sh1.245 trillion, with reduction reflected across Treasury bills, bonds and the Central Bank overdraft holdings.
This is the lowest level in the current financial year largely driven by a raft of maturing debt instruments.
Latest domestic debt figures released by the Central Bank show that the national government overdraft has fallen to Sh25.9 billion from Sh38.9 billion three weeks ago, a reduction of 12.4 billion.
Maturities of Treasury bills and bonds have seen the stock of government securities reduce by Sh24.9 billion in the week ending September 21.
According to the CBK figures, the stock of T-bills has reduced by Sh11.7 billion, while that of bonds is down by Sh13.2 billion.
Domestic debt last dropped that low at the end of June when it stood at Sh1.25 trillion.
“A surge in liquidity due to maturing securities may see the regulator intervene in the money market to mop up liquidity and anchor the shilling,” said Genghis Capital analyst Vinita Kotedia.
Due to improved liquidity, the interbank rate has fallen to 6.77 per cent, the lowest level since mid-June. A few weeks back banks were grappling with double-digit rates as the Treasury delayed releasing cash to counties and contractors.
The relatively low rate also comes at a time inflation has also edged down by nearly two percentage points to 6.6 per cent in September.
According to analysts, the decline in inflation is a good signal for the fixed income market as it will reinstate investor confidence in the economy and boost real earnings. This will reduce the pressure for higher interest rates from investors buying government securities.
Banks continue to hold more than half of the securities issued, but they cut their stake by one percentage point in the week to September 21 to Sh622.2 billion, from previous Sh646.2 billion.
Insurance companies, pension funds and other investors who include Saccos, listed and private companies, self-help groups, educational institutions, religious institutions and individuals remained flat at Sh530 billion.
Even with declining domestic debt, the country’s total debt is likely to keep rising when external borrowing is included due to the Eurobond and the standard gauge railway (SGR) loans.
The government has said it intends to shift most of its borrowing from the domestic market to international lenders in order to help push down interest rates by forcing banks to lend more to the private sector.
The Treasury’s last published figures at the end of May showed external debt stood at Sh957.9 billion. But the number goes up substantially when one factors in the Eurobond issue, which netted the government Sh174 billion from external lenders in June.
Beginning this month, Kenya will also start to receive tranches of the Sh327 billion loan money from China towards the construction of the SGR, expected to pile on to the external liability.
With the economic rebasing, however, the debt to GDP ratio is going to decline from the previous 57 per cent, improving the country’s debt profile, which makes it easier to access external debt.
