Heavy domestic debt maturities in May and June are set to complicate the Central Bank of Kenya’s (CBK) efforts to bring down interest rates, even as the State closes in on hitting its net domestic borrowing target for the fiscal year.
Analysis of upcoming maturities done by analysts at NCBA Capital shows that debt worth Sh369 billion falls due in the next two months, with May accounting for the lion’s share at Sh245 billion.
The State normally refinances maturing domestic debt through new issuances that allow investors to roll over their dues into new securities, often demanding a premium to do so.
The CBK has already signalled to the market that rates have peaked and in the latest bond auction of a reopened Sh40 billion two-year paper, the monetary regulator rejected Sh12.4 billion out of bids of Sh47.2 billion, which it deemed too expensive.
The average rate of accepted bids on the bond stood at 16.99 percent, against average investor demands of 17.14 percent.
This luxury of rejecting bids is on account of the State being ahead of target on its domestic borrowing plan for the fiscal year. By NCBA estimates, the government has now netted Sh464.9 billion from the domestic market in the current fiscal year, representing 98.6 percent of the target of Sh471.36 billion.
However, pressure remains on the government, due to the heavy maturities that need refinancing as well as sub-par tax revenue performance.
“We posit that this [maturity] is unlikely to be financed through ordinary paper, raising the likelihood of an attractive paper issue. This is expected to sustain the current appetite for local borrowing and resultantly perhaps slow the downward momentum on rates, albeit moderately,” said the NCBA analysts.
“On the other hand, if the Supplementary Budget (due any time now) prints a lower target, then we could see a further sudden drop in rates.”
In the exchequer statement for March 2024 published in the Kenya Gazette last week, the National Treasury indicated that it has met 70.9 percent (or Sh603.82 billion) of its consolidated domestic borrowing target of Sh851.9 billion for the year.
This overall target comprises the net new borrowing of Sh471.36 billion and Sh380.54 billion worth of maturities to be rolled over.
The maturities, however, tend to slide against the original target depending on the volume of short-dated Treasury bills issued during the year, which originate and mature within the year.
On the revenue end, the State had collected a total of Sh1.587 trillion in taxes and non-tax revenue in the nine months to March 2024, against a prorated target of Sh1.932 trillion.
The target for collection for the full year stands at Sh2.577 trillion, meaning that the Kenya Revenue Authority needs to collect Sh330 billion for each of the remaining three months of the fiscal year to hit the target.
In the first nine months of the fiscal year, the KRA has raised an average of Sh176.33 billion a month, while the prorated monthly target stood at Sh214.67 billion.
