Capital Markets

Treasury raises Sh73 billion from tax-free bond


The National Treasury building in Nairobi. PHOTO | SALATON NJAU | NMG

The Treasury has raised Sh73.8 billion in its June infrastructure bond issuance, failing for the first time in more than three years to hit its target amount from the popular tax-free paper.

The government was seeking Sh75 billion from the bond that was on sale between May 23 and June 7, but despite investors bidding Sh76.4 billion, the government left Sh2.6 billion on the table from bids deemed more expensive.

The average interest rate on the paper was set at 13.74 percent.

“The CBK has in recent auctions been trying to manage the cost of borrowing by keeping interest rates below the 14 percent psychological barrier and rejecting aggressive investor bids,” said Sterling Capital in a note on the bond sale.

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The Treasury was relying on the bond — the last one of the fiscal year — to fill the domestic borrowing target of Sh664.4 billion, out of which it had raised well more than 80 percent by the end of last month.

The need to close the target, analysts said, was likely to lead to a high appetite for funds from the infrastructure bond, whose recent sales have raised far above the targeted amounts due to heavy oversubscriptions.

The previous two issuances in February this year and September 21 raised a combined Sh205.4 billion, against a target of Sh150 billion, with investors having placed bids worth Sh283.6 billion in the two offers.

The elevated domestic borrowing is however an indicator of the debt risk facing the country, even though the fiscal deficit is expected to narrow in the upcoming fiscal year, as per budget documents.

Efforts to effect fiscal consolidation have been falling short in recent years, driven by a widening recurrent expenditure vote.

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In the current year, the deficit stood at Sh1.024 trillion, financed through domestic and external borrowing of Sh664.4 billion and Sh360 billion respectively.

In the 2022/2023 fiscal year, the deficit is seen at Sh862.5 billion, with the domestic market expected to contribute Sh581.7 billion while external borrowing will cover Sh280.7 billion.

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