The National Treasury intends to raise an additional Sh59 billion from the domestic market this fiscal year, pushing the target amount to Sh294 billion as it steps back from external borrowing.
The 2016 Budget outlook paper (BROP) released by the Treasury shows the State intends to borrow a combined domestic and foreign debt of Sh582.2 billion by the end of the fiscal year, revised down from Sh698.4 billion as stated in the 2016/17 budget.
This is due to a cut in projected development spending by Sh216 billion to Sh600 billion. The changes are expected to reflect in the 2016/17 Supplementary Budget.
While the domestic borrowing target has been revised upwards by Sh59 billion, the external target has been revised down by Sh174.7 billion to Sh287.6 billion, in line with recent pronouncements by Treasury CS Henry Rotich that conditions for external borrowing are not favourable at the moment due to cost implications.
“We have expanded our options or space for financing our budget… through domestic borrowing through the Treasury bills and bonds and other instruments such as syndicated loans. Currently we are still accessing domestic financing, and we will look at the other options at an appropriate time… depending on international capital markets,” said Mr Rotich last week.
In the BROP, the Treasury highlights slow absorption of funds, lower than projected revenue collection and under-reporting on appropriations-in-aid expenditures by government departments as reasons for the fiscal revisions.
A domestic borrowing scorecard by Kestrel Capital for the first four months of the fiscal year shows that the government is already ahead of target in domestic borrowing, at least based on the initial budgeted target.
By the end of October, the Treasury had taken up Sh104 billion in new borrowing, with Kestrel analysts saying that it could be a case of front loading on debt at a time interest rates are favourable.
“We believe in the first four months of the fiscal year 2016/17 approximately Sh443.3 billion has been raised against maturities of Sh339.1 billion, resulting in a new borrowing of Sh104.2 billion for the year… meaning Treasury has surpassed their self-made target by Sh35.3 billion (indicating front-loading behaviour),” said Kestrel.
The upward revision in domestic borrowing is bound to have an effect on the economy, where credit growth to the private sector has slowed down in recent months.