The Treasury is seeking to accelerate its domestic borrowing for the current fiscal year with a Sh90 billion infrastructure bond (IFB) sale for the month of August.
The issuance is a reopening of a 15-year IFB first sold in January 2018 and a 19-year IFB first sold in February 2022.
If fully subscribed, the sale will see the government’s borrowing from the first two issuances of the year surpass the Sh150 billion mark, having raised Sh66.6 billion in July’s oversubscribed sale of reopened 20- and 25-year bonds, which had targeted Sh50 billion.
In the year ending July 2026, the Treasury has a domestic borrowing target of Sh635.5 billion, which, together with external borrowing of Sh287.7 billion, will help fill a budget deficit of Sh923.2 billion.
This projected deficit is lower than the Sh997.5 billion gap in the previous fiscal year that ended on 30 June, for which the domestic financing component stood at Sh815.6 billion and external borrowing at Sh184.29 billion.
However, the government has fallen into a cycle of revising its borrowing targets through supplementary budgets due to revenue collection underperformance, meaning there is a likelihood of an adjustment in both the deficit and the domestic and external borrowing targets.
In the previous fiscal year, the June 2024 budget statement had set the deficit at Sh597 billion, to be financed through domestic borrowing of Sh263.2 billion and external funding worth Sh333.8 billion.
Three revisions through supplementary budgets followed, eventually settling at the Sh997.5 billion deficit in the Supplementary III Budget of June 2025.
Due to their tax-free status, infrastructure bonds have proven popular tools for the government to raise large amounts in monthly issuances.
The most recent IFB sale, comprising two reopened 14- and 17-year papers, was floated in February 2025, raising Sh130.8 billion against a target of Sh70 billion, from investor bids totalling Sh193.9 billion.
In the current sale, the two bonds are offering coupons, or fixed interest rates, of 12.5 percent on the 15-year tranche and 12.96 percent on the 19-year paper.
These returns on the tax-free IFBs are equivalent to 13.889 percent and 14.4056 percent on bonds that attract a 10 percent tax on interest, keeping them in line with recent yield demands on ordinary papers of similar tenor.
