CBK boss warns of hurdles meeting borrowing target

Outgoing Central Bank of Kenya (CBK) governor Patrick Njoroge has warned that the government is facing an uphill task of realising its borrowing targets from the domestic market in the new fiscal year.

The CBK says the Sh521.5 billion to be sought from the domestic market is a tall order and risks having perverse outcomes at a time the market is struggling to woo investors.

The CBK now wants the National Assembly to compel the Treasury to revise downward the planned domestic borrowing for the financial year 2023/24, citing challenges in the market’s ability to realise the target.

“The domestic market has continued to support growing budgetary financing requirements. However, due to elevated financing needs, the capacity of the domestic market to finance deficits, especially in the last two financial years has been limited. The CBK raised 89 percent of the borrowing programme target in the 2021/2022 fiscal year and 57.3 percent (Sh249.1 billion) of the 2022/2023 borrowing target as of May 31, 2023,” the apex bank says.

This comes as the National Assembly's Budget and Appropriations Committee has recommended that the House increase the planned spending for the next financial year by Sh80.7 billion to Sh3.69 trillion.

Of the proposed increase, Sh56.5 billion is earmarked for recurrent spending while the remaining Sh24.2 billion is designated for development.

The CBK says the high appetite for financing the government’s revenue shortfalls from the domestic market threatens market risks.

“Tight domestic conditions continue to prevail due to delayed budgeted external financing against the backdrop of elevated inflationary pressures, heightened geopolitical tensions and significant financial market volatility,” says the CBK.

“The domestic borrowing target for 2023/2024 is quite ambitious due to limited market capacity. In our view, this higher borrowing target is likely to have a disproportionately negative impact on yield curve stability and market confidence risking contagion across the total value of outstanding debt stock,” the CBK says.

The apex bank has fired this warning shot at a time investors have been shunning long-term government securities and concentrating on short-term instruments.

In mid-April, the government was compelled to cancel the auction of a 15-year bond on low appetite from investors.

In May, the government issued two tap sales on a three-year bond, an indication that the Exchequer has switched gears to lean on shorter-term bonds as it confronts the market realities of low appetite.

This warning on fiscal dominance comes as Dr Njoroge exits the stage, paving the way for Dr Kamau Thugge as the tenth governor of the CBK.

MPs approved Dr Thugge’s nomination on Wednesday.


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