Domestic debt up Sh45bn in six weeks in race to roll out projects

Kenya’s domestic debt has increased by Sh45 billion in just six weeks even as the State expresses its wish to borrow less from the local market.

Between November 1 and December 5, the Treasury had increased total borrowing by 3.6 per cent to Sh1.3 trillion as it raced to implement development plans and meet domestic debt target.

Central Bank of Kenya (CBK) data showed the figure stood at Sh1.255 trillion at the beginning of November.

Treasury secretary Henry Rotich recently said the domestic borrowing target had been revised to between Sh120 and Sh130 billion for the 2014/15 fiscal year, from the initial estimate of Sh191 billion.

The increased uptake of treasury bills and bonds saw the government reduce its overdraft at the CBK to just Sh18.46 billion from Sh39.1 billion as at the end of June.

The Treasury pays back the overdraft at an interest based on the Central Bank Rate, currently set at 8.5 per cent.

Analysts said the faster borrowing pace has to do with the need to roll out the major infrastructure projects that the State has promised to implement in the course of the year.

“The capital spending that was outlined in the Budget is such that the Treasury needs the money to quickly roll them out,” said Geoffrey Maina, research analyst at Old Mutual Securities.

He noted that despite raising cash through the global market via Eurobond, the demand for cash to spend on projects remained high. Sh180 billion was raised through the Eurobond that was re-opened recently to take an extra Sh68 billion.

Going back to the beginning of the financial year in July, data shows domestic debt has increased by Sh50 billion, but has recently picked pace with the issuance of several bonds.

READ: Treasury to cut domestic borrowing by half, Uhuru says

A bond tap sale, which involved re-opening of an existing 15-year government security, saw the State raise Sh10.7 billion in November.

There was also re-opening of an infrastructure bond with a tenor of 12 years that saw the state raise another Sh1.572 billion, which was, however, a poor performance as the target was Sh15 billion.

It re-opened a bond issued in October and which had raised Sh6.99 billion, meaning the total under the 12-year security is Sh8.3 billion.

“The interest rates are favourable for government borrowing, so it is likely to quicken the issuance to meet the capital spending needs,” said Mr Maina.

The quickening of the borrowing pace was driven by the fact that by late November – with nearly half the year lapsed – the total net domestic debt was only Sh33.7 billion, as shown by Kestrel Capital data, yet the target is Sh130 billion for the entire fiscal year.