The government faces domestic debt maturities running to Sh960 billion in the remaining months of the current fiscal year, testing its resolve to ease its local borrowing demands and tame rising interest rates.
The government normally rolls over maturing debt via new issuances of Treasury bills and bonds, effectively netting the effect on the budget. However, in instances of heavy maturities, investors tend to demand a premium to roll over their funds.
Analysis done by NCBA Capital shows that on average, the government will be rolling over Sh96 billion monthly between September 2023 and June 2024. The Treasury also requires to raise an average of Sh34.6 billion every month in new borrowing to fill the Sh415.3 billion net borrowing target for the fiscal year.
In September, maturities of T-bills and bonds stands at Sh119 billion, falling marginally to Sh118 billion in October. The Treasury revised the domestic borrowing target downwards from the Sh586.5 billion that was contained in the June budget to Sh415.3 billion in the draft 2023 Budget Review and Outlook Paper, which was published last week.
Earlier, the Central Bank of Kenya had pointed to an even higher cut in borrowing—to Sh386 billion—but an upward revision of the recurrent budget has trimmed the reduction.
“Overall in the remainder of 2023, government paper maturities are significant, approximating Sh390 billion. In half one of 2024, debt maturities amount to Sh570 billion,” said the NCBA analysts. “This will reinforce the sovereign’s appetite for domestic funds unless new external financing comes through.”
In the meantime, investors have continued to demand higher rates on government paper, with an eye on the elevated cash demand to cover both maturities and new borrowing.
In last week’s T-bills auction, the rate on the one-year tenor crossed the 15 percent mark to hit an eight-year high of 15.22 percent.
Short-term bond rates have also gone up significantly in the last three months. The September bond which comprised the reopening of 10-year and two-year papers paid 17.92 percent and 17.45 percent respectively for the two tranches.
Aside from pressure on the taxpayer in terms of servicing public debt, bank loan borrowers will also take a hit as the higher interest rates filter through to their facilities in a period of economic difficulties that have made it more difficult to service loans.