Treasury locks in Sh104bn of expensive domestic borrowing

The Treasury increased its debt position by Sh104 billion during the six weeks of high interest rates which allowed it to catch up with its debt plan.

Three weeks ago the government had borrowed Sh64.5 billion from the domestic market against a target of Sh76.4 billion, shows data from Kestrel Capital.

This is a huge improvement from September when the government had not booked new local loans but instead paid out Sh40 billion to settle maturing bills and bonds.

The Treasury was 118 per cent behind target at the beginning of October. Kenya’s financial year starts in July.

“In the first five months of the financial year approximately Sh318 billion has been raised against maturities of Sh253.5 billion resulting in a new borrowing of Sh64.5 billion; indicating that the Treasury are behind budget by 71 per cent,” wrote Kestrel Capital.

Austerity measures

A spike in interest rates at the end of September saw investors open their purses to the cash-strapped government which accepted most of it despite the high price. The indicative 91-day Treasury bill was yielding 22.5 per cent on October 22, compared to 14.5 per cent a month earlier.

The State plans to lower its Sh222 billion domestic borrowing target if it succeeds in cutting public expenditure after the recently announced austerity measures.

The Treasury took a syndicated loan of Sh80 billion to help it stop borrowing from the local market where it had started crowding out the productive private sector.

Treasury PS Kamau Thugge told the Business Daily the Treasury expects to receive the second tranche of the loan, which is 40 per cent of the principal.

But analysts are not as optimistic indicating they do not expect the government to lower its borrowing appetite which may result in another round of interest rate hikes.

“While this (the syndicated loan) will offer some short-term relief, the domestic borrowing programme is still behind schedule. Tax revenues are also likely to come under pressure due to a slow-down in the economy” said analysts at Stanlib Kenya.

“This is indicative of fiscal pressure over the course of the financial year and thus elevated interest rates,” said analysts at Stanlib. Kestrel Capital said it was premature to lower the current borrowing target given the government had not disclosed any plans to take another international debt to supplement domestic debt.

Lower appetite

The government revenue plans have been affected by slowdown of the economy which has seen revenue collections fall behind target by Sh28 billion, scuttling its debt budget.

“The government has been able to lower its appetite and so it is now on top of its borrowing plan and going forward we expect it to stick to its borrowing plan,” said Central Bank of Kenya governor Patrick Njoroge in a presentation to Parliament.