Slow absorption of State cash cuts Treasury overdraft
The Treasury building in Nairobi. In the last two auctions of government debt the Treasury has issued securities worth Sh9 billion. PHOTO | FILE
What you need to know:
Despite the delayed use of the Eurobond money, interest rates have started heading south due to high liquidity in the market with CBK increasing its foreign exchange reserves.
Slow cash uptake by government ministries has helped the Treasury reduce its overdraft at Central Bank of Kenya (CBK) and cut interest rates in the last three weeks. Data from CBK’s weekly bulletin shows short-term debt to the government dropped by Sh14.3 billion to Sh24.8 billion while interest rates on the 91-day Treasury bill declined to 8.7 per cent.
Sources at the Treasury indicated the Government had not begun using the sovereign bond cash but its credit appetite has been tempered by the low demand for funds from ministries.
“The spending cycle is yet to start but revenue collection is ongoing,” said a source at the Treasury who is not authorised to speak to the press. In the last two auctions of government debt, the Treasury has issued securities worth Sh9 billion compared to Sh12 billion it had sought to raise at the previous weekly auctions, underlining the low cash demand.
Despite the delayed use of the Eurobond money, interest rates have started heading south due to high liquidity in the market with CBK increasing its foreign exchange reserves.
The yield on the 91-day Treasury bills has seen the largest decline climbing down from 11.43 per cent in the first week of the month to stand at 8.7 per cent last week, while the half-year paper is now trading at 10 per cent down from 11.8 per cent. The drop in interest rates has seen the short-term bill lose its allure in a move that releases cash for lending to the private sector.
Bids received for the Sh3 billion 91-day paper were just Sh753 million compared to previous oversubscription.
Attractive options
The drop has encouraged companies to start going for corporate bonds as investors look for attractive options to pack their money. Insurers Britam and UAP have just concluded successful bonds to raise Sh6 billion and Sh2 billion respectfully.
South Africa-based Real People has announced plans to issue a bond joining the likes of NIC Bank and CIC Insurance which are also eyeing the debt market. CBK data shows that its foreign reserves shot up by Sh30 billion ($350 million) in the first week of July.
CBK noted that the reserves did not include proceeds from the Euro bond which will go into the account when the government starts spending the money and needs to convert the dollars to local currency. Though there was no data on how much the Treasury has collected in revenues, it had collected Sh54.7 billion in revenues in July last year and had issued out Sh48 billion for expenditures.
