CBK seeks Sh20bn from bond tap-sale in bid to hit domestic borrowing target

The Central Bank of Kenya in Nairobi County on January 28, 2024. 

Photo credit: File | Nation Media Group

The government has returned to the market for an additional Sh20 billion via a tap sale of the June bond, which has already raised Sh61 billion, underlining efforts to hit the recently revised domestic borrowing target for the current fiscal year.

The tap sale opened on Tuesday and will close on Thursday, according to a prospectus published by the Central Bank of Kenya (CBK).

This additional offering is likely to be the last bond floated in the current fiscal year, which closes on June 30.

The June bond comprised the reopening of four existing bonds of tenors ranging from two to 10 years, and average yields of between 16.4 percent and 18.2 percent.

The bonds were sold in pairs over different periods earlier this month, with the first pair –the two and three-year options—raising Sh30.8 billion, and the five and 10-year pair subsequently raising Sh30.1 billion.

Overall, the primary sale targeted Sh60 billion, with investors offering the government Sh74.3 billion. The tap sale therefore sees the CBK go back into the market to mop up the additional billions that were left on the table from the earlier sale.

The appetite for domestic borrowing in the current year has been driven by underperforming tax collections, which have widened the fiscal deficit.

A report by the National Assembly’s Budget and Appropriations Committee on the 2023/2024 Supplementary Budget II indicated that the fiscal deficit for the year has risen to Sh908.6 billion, from the Sh718.9 billion that was in the original budget estimates published by the government in June 2023.

To finance the budget shortfall, the Treasury has targeted net borrowing worth Sh589.3 billion from the domestic market and Sh319.3 billion in foreign net financing.

The committee added that by the end of April, the Treasury had a revenue shortfall of Sh222.2 billion against its 10-month target of Sh2.4 trillion.

The revenue shortfall has been seen despite the government’s introduction of new taxes in the 223 Finance Act, including the 1.5 percent Housing Levy, doubling of VAT on fuel to 16 percent (excluding LPG), and introduction of new tax bands of 32 and 35 percent targeting employees paid more than Sh500,000 per month.

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