Capital Markets

Domestic debt dips Sh49bn in September

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National Treasury building. FILE PHOTO | NMG

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Summary

  • An assessment by Sterling Capital Limited shows the government netted Sh41 billion from the domestic market in September, down from Sh90 billion in August in the wake of increasing domestic debt redemptions against a decline in subscriptions.
  • Provisional Sterling Capital data further shows net borrowing in October fell to a deficit of Sh15.8billion, with debt repayments estimated at Sh158 billion exceeding the Sh144.5 billion borrowed in the local market.
  • This was attributed to a decline in Treasury bills demand in September and October as investors shifted their preference to the higher-yielding T-bonds.

The net domestic borrowing by the government fell by Sh49 billion in September compared to the previous month, an analysis shows, pointing to the State’s struggles to raise funds in a market ravaged by liquidity challenges.

An assessment by Sterling Capital Limited shows the government netted Sh41 billion from the domestic market in September, down from Sh90 billion in August in the wake of increasing domestic debt redemptions against a decline in subscriptions.

Provisional Sterling Capital data further shows net borrowing in October fell to a deficit of Sh15.8billion, with debt repayments estimated at Sh158 billion exceeding the Sh144.5 billion borrowed in the local market.

This was attributed to a decline in Treasury bills demand in September and October as investors shifted their preference to the higher-yielding T-bonds.

“There has been an increase in domestic debt but a decline in external debt, meaning that the government could have settled maturing external debt,” Renaldo D’Souza, head of research at Sterling Capital said.

The drop in the net borrowing amid rising domestic debt maturity risks an expected upward revision in the borrowing target for the year.

In the recent month, investors had shown preference to the long-term papers due to higher returns and their tax-free nature. However, declining market liquidity could see lower subscriptions to the Treasury bonds, worsening the situation.

Most government debt holders such as insurance companies and pension schemes face a hit by Covid-19 pandemic that led to suspension or reduction of premiums.

Top insurers have announced a sharp rise in withdrawals over the period as most policyholders turned to their contributions to survival.

Commercial banks have also restructured loans, increasing their loan provisions and a decline in profits.

The Central Bank of Kenya data shows the public debt bulged by Sh53 billion in the month to September 20 to stand at Sh7.12 trillion, up from Sh7.07 billion on August 20.

The debt is quickly nearing the Sh9 trillion cap that was expected to be reached by 2022/23 financial year.

“The biggest risk of the rapid pace of growth in public debt is the refinancing risk. A huge proportion of new debt accumulated by the Treasury through the CBK is directed towards debt service,” Mr D’Souza added.