Domestic debt cost tipped to rise on high maturities

The government’s cost of borrowing from the domestic market is likely to go up from this month, pushed by pressure to refinance a large load of maturing debt while filling an equally big financing gap for the current budget.

Analysts project increased financing needs coupled with shortfalls in revenue collection will push the National Treasury to borrow even larger amounts in the second half of the fiscal year.

Domestic debt service in January is estimated at Sh159.9 billion, comprising Sh128.8 billion in maturing Treasury bills, Sh31.12 billion in bonds, and Sh15 billion in interest payments.

This is almost triple the payments for December that stood at Sh67.4 billion.

The Treasury is this month seeking to raise a total of Sh75 billion through a two-year bond (Sh25 billion) and a 16-year infrastructure paper (Sh50 billion). The sale of the two- year paper closed ion Tuesday, while the other bond’s sale closes on January 19.

With the Treasury also behind target in domestic borrowing, having raised Sh270 billion out of the revised target of Sh600 billion by the halfway stage of the year, analysts see the possibility of the State having to pay more to unlock more money from a market that is also experiencing tight liquidity.

“The increase in debt appetite evidenced by the Sh75 billion primary issue in January coupled with relatively tight liquidity could see an accelerated increase in yields in the latter half of the current fiscal year,” analysts at NCBA report.

In the past two months, the interest rates on short-term State securities have gone up, with the amounts raised at the weekly auctions falling due to tighter liquidity due to mop up by CBK in a bid to fight shilling volatility.