The cumulative amount of interest the government paid on its domestic debt rose by a fifth in the six months of the 2023/2024 fiscal year, compared to the corresponding period of the previous year, highlighting the effect of the high yields of its securities.
The National Treasury’s latest quarterly economic and budgetary review report shows that the government spent Sh300.1 billion on domestic interest charges in the six months to December, up from Sh251.6 billion in a similar period in 2022—marking a Sh48.5 billion jump.
In addition to the higher rates, the government also expanded its borrowing from the domestic market in the period to a net of Sh209.9 billion, compared to Sh124.1 billion a year earlier.
Interest rates on government securities were higher in 2023 compared to the previous year, raising the cost of new borrowing for the State and that of rolling over maturing debt.
On the short end, Treasury bill average rates rose from 9.84 percent at the end of 2022 to 16.01 percent at the end of 2023. The peak interest rate for Treasury bonds issued in 2022 was 14.18 percent compared to 17.9 percent in 2023.
The cost of servicing loans rose on heightened investor concerns about the sustainability of the government’s public debt pile, especially on the repayment of a 10-year, $2 billion (Sh285.1 billion) Eurobond issued in June 2014.
This bond was largely refinanced last week via a buy-back of $1.44 billion(Sh204.22bn) worth of units by the government, which was financed by the proceeds of a new seven-year issuance of $1.5 billion(Sh213.03 billion).
The question hanging on the Eurobond, and the government’s low net borrowing from the external market in the first half of the fiscal year, had led investors to demand higher rates on domestic bonds, anticipating that the government would be forced to accept their expensive bids.
The net borrowing and interest payments for the period were however behind the budgeted targets, indicating that even as the government grappled with higher debt costs, it was also struggling to meet its borrowing requirements. The budgeted net domestic borrowing target for the six months was Sh356.2 billion, while the State expected its interest costs to stand at Sh321 billion.
Disbursements from external lenders stood at Sh105.03 billion in the period, but with principal repayments of Sh134.6 billion being made, the government ended up with a net repayment position of Sh29.6 billion.
