Government revenue fell Sh51.41 billion in the first three months of the current financial year as the Treasury struggled to tap cash from the domestic bond auctions and secure international loans.
Total revenue into government coffers dropped to Sh408.14 billion in the July-September period, down from Sh459.55 billion a year earlier, even as demand for cash to fund government obligations, including last Thursday’s repeat presidential poll and related security measures, increased.
The fall in revenue was largely on account of a Sh37.22 billion dip in net domestic debt to Sh46.82 billion from Sh84.04 billion in the same period last financial year.
The Central Bank of Kenya (CBK) raised Sh49.76 billion out of the Sh90 billion the Treasury was looking for in the bond market, representing a bid acceptance rate of 55.27 per cent.
That was because most investors demanded higher returns than the average of between 11.62 and 13.32 per cent that the government was willing to pay for their money. At some point, the CBK was forced to re-open the existing bonds, a move that helped raise Sh36.28 billion in tap sales for a total of Sh86.04 billion from bond issuances in the quarter under review.
With the prevailing political impasse making it difficult to borrow from foreign markets at favourable rates, analysts see the Treasury increasingly relying on domestic markets in the near term.
“Despite rising fiscal deficit and inflation in the first half of the year, we never saw yields rise because the banks had nowhere to put their money,” Jibran Qureishi, Stanbic Bank economist for East Africa, said.
“They (CBK) have been rejecting expensive debt at the auctions, but they then come and tap the auctions at weighted average yield. I am least concerned about the yield on government paper rising.”
Total tax collection by the Kenya Revenue Authority overcame the election jitters to rise by Sh28 billion in the first quarter under review to Sh317.42 billion compared to the same period last year.
Tax revenues, however, fell short of target by Sh29 billion, Treasury principal secretary Kamau Thugge told Reuters last month.
The underperformance in tax collection is largely driven by a slowdown in economic activity arising from prolonged drought and political uncertainty related to inconclusive elections.
These, together with credit rationing, has seen private sector activity fall to a 45-month low, according to monthly Stanbic Purchasing Managers’ Index.
Treasury secretary Henry Rotich last week slashed growth outlook by a further half percentage point to five per cent, making it the slowest in five years, citing prolonged electioneering process.
Analysts at Genghis Capital last Friday maintained growth was likely to fall below five per cent this year, putting it at 4.25-4.75 per cent.
“The current political stalemate has weighed down on the private sector which has in turn impacted negatively on PAYE (Pay As You Earn) and other income tax categories,” Genghis analysts said in a note to investors.
President Uhuru Kenyatta was expected to overwhelmingly win last Thursday’s election after his main competitor, Raila Odinga of National Super Alliance, withdrew citing lack of electoral reforms.
“It (repeat polls) has made our budgetary implementation for 2017/18 very difficult,” Mr Rotich said.
“We have tightened our belts, we have cut expenses drastically to deal with emerging challenges and we shall continue until the situation full normalises.”