Treasury’s domestic debt decreases

The Central Bank of Kenya building in Nairobi. The domestic debt has reduced by Sh24.4bn since the beginning of August. FILE 

By CHARLES MWANIKI

In Summary

• Reduction in the portfolio linked to fall of investment in Treasury bills since the beginning of August.

Less investment in Treasury bills has seen the government’s domestic debt reduce by Sh24.4 billion since the beginning of August.

According to figures in the Central Bank of Kenya’s latest Weekly Bulletin, the amount held in Treasury bills stood at Sh260.7 billion on September 13, down from Sh280.2 billion on September 6 and Sh278 billion at the end of August.

The reduction in the portfolio comes at a time interest rate on government securities has been falling. It reflects reduced rollover (reinvestment) of the debt, with matured bill payments being higher than the uptake of new issues.

Interest payable on 91-day Treasury bills stands at 9.13 per cent, compared to 10.4 per cent at the beginning of September. That of the 182-day Treasury bills is 9.69 per cent compared to 10.8 per cent at the beginning of the month. The 364-day paper rate has gone down from 11.6 per cent to 10.4 per cent in the same period.

“During the week ending September 13, 2013, gross government domestic debt decreased by Sh19.6 billion on account of Treasury bills, while Treasury bonds, Government overdraft at the Central Bank and other domestic debt remained unchanged,” said CBK.

Gross domestic debt stood at Sh1.093 trillion on September 13, up from Sh1.051 trillion in June.

But the reduction from a high of Sh1.118 trillion recorded at the end of August has helped keep the cumulative interest payments lower than they were at a comparable period in the 2012/13 financial year.

Cumulative interest and other charges on domestic debt during the week ending September 13 amounted to Sh15.4 billion compared to Sh19.3 billion during a similar period of the last financial year, reducing the tax payer’s debt repayment burden.

Bank of Africa head of trading Peter Mutuku said the interest rate remains key in attracting investors to the government paper.

Better returns

“There were a lot of investors who took up the securities when the interest rate went up recently. However, looking at a rate of around eight per cent, there are not many who will invest at that level since they can get better returns from banks,” said Mr Mutuku.

The rising inflation rate, which has gone up from 4.91 per cent in June to 6.67 per cent in August, means that the Treasury lenders will expect a higher interest rate return on the securities.

Suntra Investment’s head of research Johnson Nderi said that while falling interest rate points towards increased demand of the securities, investors still keep an eye on the government’s ability to fund its expenditure and its effect on inflation.