Central Bank of Kenya report shows the cumulative interest payments in the past one year were 36 per cent higher than in the 2011-2012 financial year. FILE
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CBK report shows the cumulative interest payments in the past one year were 36 per cent higher than the payments at a similar period in the 2011-2012 financial year.
The cumulative interest repayment is the highest ever for the country, corresponding to the rise in domestic debt which has hit Sh1.08 trillion.
Interest payment on Kenya’s public debt has hit Sh101 billion, exceeding the allocation for most government ministries in an indication of the strain that borrowing is exerting on the national budget.
The Central Bank of Kenya’s weekly report released on Friday shows the cumulative interest payments in the past one year were 36 per cent higher than the payments at a similar period in the 2011-2012 financial year—when the cost stood at Sh74.2 billion on May 31, 2012.
“The rise in interest payments is a result of the rapid increase in gross domestic borrowing, by 25.8 per cent in the 11 months to May 2013 compared with 16.3 per cent in a comparable period in 2012. However, gross domestic borrowing was aligned to the budgetary projections for fiscal year 2012/13,” said CBK in the report.
A breakdown of the Sh101 billion cost shows interest and other charges on Treasury bills and Treasury bonds amounting to Sh20.9 billion and Sh76.5 billion, respectively.
In addition, interest on government overdraft at the Central Bank and the pre-1997 government overdraft amounted to Sh2.5 billion and Sh1.2 billion, respectively, says CBK in the report.
In the corresponding period last financial year, the level of domestic debt stood at Sh858 billion, meaning borrowing from the local market has gone up by Sh222 billion in the past one year.
Government securities accounted for Sh1.009 trillion, representing 93.5 per cent of gross domestic debt on May 31, 2013, made up of Sh748 billion in treasury bonds and Sh261 billion in treasury bills.
Holdings of these securities by commercial banks have risen to 51.7 per cent at the end of May 2013 compared to 49.1 per cent in June 2012, an increase of Sh119 billion.
Pension funds also increased their government securities holdings from 22.8 per cent in June 2012 to 24.7 per cent on May 31, 2013 a rise of Sh63 billion.
This means that these institutions have gained the most from the government’s appetite for domestic borrowing, although they could cut their lending to the government following the recent drop in Treasury security yields.
Interest rates on government securities have come down by two to three percentage points in the past two months. As at June 3, the 91-day Treasury bill rate dropped to 7.56 per cent from 10.1 per cent in early May, while the 192-day- Treasury bill rate fell to 8.84 per cent from 10.48 per cent in early May.
It remains to be seen whether the government will ease on domestic borrowing given its increased expenditure estimates to Sh1.6 trillion, which have seen increase of Education, Agriculture, Internal Security and Health budgets.
The Kenya Revenue Authority (KRA) is expected to collect Sh880 billion in the next financial year, up by 22 per cent compared to the 2012/13 target, and any deficit could see the government return to the domestic market for more debt.
In a research note on Kenya’s economic recovery, Standard Chartered Bank regional head of research Africa Razia Khan said that the expectations are that the domestic debt market will shoulder less burden of increased costs of running government with the likely issue of the country’s maiden Eurobond in the 2013/14 financial year.
“With Kenya’s total public debt ratio approximately at 45 per cent, and given plans by parastatals to increase their US dollar borrowing, the Eurobond should serve as an additional means of keeping domestic debt-service costs contained, while also providing a benchmark for increased state-owned enterprise and other corporate issuance,” said Ms Khan.
The rate of increase of foreign debt on the other hand has slowed down in the last three quarters on account of the strengthening shilling.
