Buyers of fixed-income securities and stock brokers are set to be major beneficiaries of a 19.6 per cent increase in domestic market borrowing in the 2020/21 fiscal year.
According to preliminary budget estimates for the next fiscal year, the State plans a domestic borrowing target of Sh369.5 billion compared to a revised Sh308.9 billion projected for the end of this year.
The purchasers of Treasury bills and bonds likely to benefit from increase local loans to the government include commercial banks — the single largest holders of the fixed-income securities — parastatals, insurance companies and pensions funds. Brokers earn commissions from the trading of the securities on the secondary market.
The increase in the amount of cash borrowed by the State locally comes in the wake of projected lower loans and project financing from foreign sources.
No syndicated loans are factored in the 2020/21 Budget.
The total fiscal deficit is projected to be Sh640.2 billion in the year ending next June having been drastically revised upwards — by Sh140 billion — from the initial Sh500.2 billion.
Relative to the revised estimated for the deficit, the 2020/21 deficit is expected to fall to Sh584.6 billion.
Overall, the total fiscal deficit as a percentage of the gross domestic product (GDP) is expected to fall to 4.8 per cent from the 2019/20 projected 5.9 per cent.
“Including grants, the overall fiscal deficit is projected at Sh584.6 billion (4.8 percent of GDP) in FY 2020/21 against the estimated overall fiscal balance of Sh640.2 billion (5.9 percent of GDP) in Fiscal Year 2019/20.
The fiscal deficit in FY 2020/21 will be financed by net external financing of Sh211.8 billion (1.7 percent of GDP) and net domestic financing of Sh369.5 billion (3.0 percent of GDP),” said the Treasury.
The rise in the projected government borrowing from the domestic market deals a blow to the efforts to address the constrained private sector credit expansion as it gives financiers a bigger leeway to pack more cash in the fixed-income securities.
The revision in the 2019/20 targets was done against realisation of lower-than-projected revenue growth.