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Public debt drops below Sh6trn on slow loans uptake

Churchill Ogutu
Genghis Capital senior research analyst Churchill Ogutu during an economic outlook briefing in Nairobi in October. FILE PHOTO | NMG 

Kenya’s total debt has dipped below Sh6 trillion for the first time since June, a temporary relief as the Treasury waits to test the international market.

Treasury sources indicated revenues had been used to settle local debt and they are yet to tap the international market, leading to the drop to Sh5.9 trillion.

“Government didn’t raise enough through T- Bills to cover maturities as market underperformed, which meant paying debts through revenues and on the external front we have had more repayments than receipt of loan proceeds. However, the net effect of reduction in total debt is just a temporary thing,” a Treasury official said.

Analysts point out that the decline is only short-term since the Treasury has a heavy borrowing calendar to plug the budget deficit.

“I think it is temporary because there is still some financing to be done. There is a quantum of international borrowing that is still to be done. Even if they talk about concessional debt there is no running away from some form of commercial debt at some point,” said Churchill Ogutu, senior research analyst at Genghis Capital.

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Head of Research at Sterling capital Renaldo D’Souza said recent job losses and the general slowdown in economic activity point to a decline in tax revenue and economic productivity with the deficit expected to be filled through borrowing.

“In my opinion, public debt figures are unlikely to come down this fiscal year due to the growing mismatch between government receipts (tax income) in particular and its expenditure,” Mr D’Souza said.
He added that the government is unlikely to meet its revenue mark as it is expected to overshoot expenditure target.

Case in point is the revised domestic borrowing target in September where the 2019/20 fiscal target rose Sh6.5 billion to Sh429.4 billion.

It is not just the amount of debt that is expected to rise. The cost of domestic debt will also rise after the repeal of the rate cap which has given banks options on whether to lend sovereign or to the private sector.

The recent Sh50 billion 10-year bond whose sale closed yesterday will test the rates that the government is willing to pay the market with bids expected to chase a premium.

“The auction tomorrow we expect some premium on the tenure, not something big but gradual,” Mr Ogutu said.

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