Central Bank data shows domestic debt up by Sh30bn
The Central Bank of Kenya. Overall domestic borrowing is unlikely to change much by the end of the month. PHOTO | FILE
What you need to know:
The domestic borrowing target for the current financial year has been revised twice since the initial borrowing plan in the Budget statement in June.
The government plans to reduce domestic borrowing by turning to external debt such as the Eurobond issue.
Analysts expect yields on the domestic bond issues to experience downward pressure in the short term given that the government retains its plan to curb its appetite for domestic borrowing.
Domestic debt has risen by nearly Sh30 billion since the beginning of the year, bringing cumulative borrowing to Sh1.334 trillion.
The latest data from the Central Bank of Kenya shows the stock of local debt has grown by Sh84 billion since the beginning of the current financial year in July 2014, the equivalent of over half of the government’s target for the whole financial year.
The rise in debt stock in January was caused by a lack of maturities in Treasury bonds—meaning there was no netting off—coupled with the successful issue of reopened five and 20 year-bonds that attracted a total of Sh20 billion.
In the budget policy document released last month, the Treasury raised the domestic borrowing target for the financial year to Sh144.8 billion in order to plug expected revenue shortfalls of Sh17.8 billion and new expenditure demands.
“The government has however faced revenue mobilisation challenges in the first half of the financial year and this could translate in borrowing above target,” said research firm Stratlink Africa in its February market report.
The domestic borrowing target for the current financial year has been revised twice since the initial borrowing plan in the Budget statement in June.
The government plans to reduce domestic borrowing by turning to external debt such as the Eurobond issue. Initially, in June the Treasury had set a domestic borrowing target of Sh190 billion, which was revised downwards in October to Sh101.7 billion.
The government is currently selling two bonds—a new two-year and a reopened 10 year issue— targeting Sh25 billion. The sale opened on Thursday and will run until February 17.
Bond maturities for February stand at Sh31 billion, meaning the overall domestic borrowing picture is unlikely to change much by the end of the month as the maturities cancel out the new bond issues.
The maturities, combined with government payments to departments and contractors, should see an increase in liquidity which remained tight throughout January.
The net increase in Treasury bill issues so far this month is Sh3 billion. This has been a result of maturities of Sh4.7 billion, offsetting new issues worth Sh7.7 billion.
Analysts expect yields on the domestic bond issues to experience downward pressure in the short term given that the government retains its plan to curb its appetite for domestic borrowing.
This is likely to see investors turning to the secondary market, which should spur turnover in the coming months.
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