The National Treasury building in Nairobi. PHOTO | FILE
What you need to know:
Net borrowing stood at Sh202.98 bn as at the end of March this year.
The government has overshot the revised domestic borrowing target at a time of slow disbursement of funds promised by foreign donors.
Although the revised target for domestic borrowing was Sh118.8 billion, the net borrowing stood at a massive Sh202.98 billion as at the end of March this year, according to data released by the Treasury through the latest edition of the Kenya Gazette. This was just nine months into the financial year that ends in June.
Initially, the government had budgeted for Sh190.1 billion but cut this in a bid to ensure that the domestic borrowing did not affect the cost at which the private sector borrowed.
Despite the higher borrowing by the State, the lending rate for the private sector has remained stable at about 16 per cent, even showing tendency for marginal decline since July last year.
The increased domestic borrowing came on the back of the grants from foreign governments and international organisations being less than half of the printed estimate, the Kenya Gazette shows.
Analysts say the government has taken advantage of favourable market where investors had cash to invest in the Treasury securities.
“What is clear is that the government took advantage of the favourable environment to borrow more between January and March,” said Alexander Muiruri, head of fixed-income at Nairobi-based investment bank Kestrel Capital.
Although Sh10 billion was expected in terms of grants by June, only Sh4.4 billion had been received by the end of March.
For instance grants from AMISON are supposed to reach Sh6 billion, but only Sh3.5 billion had been reimbursed by the end of the nine-month period. The target for foreign loans was Sh14.3 billion short of the Sh36.2 billion target set for the end of the financial year in June.
Mr Muiruri said the first quarter of the year showed considerable liquidity that the government exploited in order to borrow more than had been targeted.
In some of the recent auctions, the government floated an infrastructure bond in which it raised Sh50 billion in two tranches of Sh25 billion each in quick succession. In January, the Treasury raised Sh24 billion in a two-year bond at a coupon (or interest) rate of 11.47 per cent.
Another factor that may have necessitated high borrowing was the amount of taxes so far realised. Despite the financial year being three-quarters done, the total tax collections remitted to the Treasury stood at Sh699.8 billion were 70.7 per cent of the revised full-year target instead of 75 per cent.
The amount shows that the Kenya Revenue Authority (KRA) has handed over an average of Sh233 billion every quarter of the financial year.
Initially, the printed estimate of the taxes to be collected in the 2014/15 fiscal year was Sh1.05 trillion.
But the tax revenue projection was revised downwards to Sh989.6 billion, indicating realisation that the initial Sh1 trillion-plus collection was found to be unachievable.
The rising domestic borrowing comes against an accelerated State foreign commercial and multilateral borrowing.
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Note: The results are not exact but very close to the actual.
