Market News

Public debt interest rates to increase

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Treasury CS Ukur Yatani. FILE PHOTO | NMG

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Summary

  • Interest rates on government debt are expected to continue rising this year on the back of negative sentiment on the government’s fiscal position and fluctuating liquidity in the market.
  • A fixed income outlook note by investment bank Dyer& Blair says that the Increasing debt service burden coupled with the underperformance in revenue will sustain upward pressure on interest rates.

Interest rates on government debt are expected to continue rising this year on the back of negative sentiment on the government’s fiscal position and fluctuating liquidity in the market.

A fixed income outlook note by investment bank Dyer& Blair says that the Increasing debt service burden coupled with the underperformance in revenue will sustain upward pressure on interest rates.

Rates on government paper have in the past two years been largely contained, but have in the last few auctions shown upward bias as the government faces up to a larger budget deficit amid rising maturities of domestic debt.

“Whereas we acknowledge the need for the government to commit to deficit reduction, we highlight that future deficits are already locked in by the debt refinancing burden and by the need to stimulate the economy post Covid-19,” said the investment bank in the note.

“Therefore, we expect fiscal deficit to remain elevated over the medium term implying that the associated upward pressure on interest rates will remain.”

The total domestic maturities and interest payments for the last four months of the fiscal year (March to June) add up to Sh315 billion, while the Treasury still needs to borrow Sh266.1 billion to fill its net borrowing target of Sh572.7 billion from the domestic market.