Treasury to cut domestic borrowing by half

President Uhuru Kenyatta. PHOTO | FILE 

By KAZUNGU CHAI, PSCU

In Summary

• The Treasury will likely borrow around KShs100 billion (about $1.1 billion) in the 2014/2015 financial year.
• Kenya plans to cut domestic borrowing by nearly 50 per cent this financial year to help lower interest rates.

Kenya plans to cut domestic borrowing by nearly 50 per cent this financial year to allow lower interest rates to boost the private sector and grow the economy, President Uhuru Kenyatta has said.

 

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Instead, Kenyatta's administration will be looking to raise more money on the international markets with sukuk and samurai bonds — Islamic and Yen-denominated sovereign debt instruments.

The Treasury will likely borrow around KShs100 billion (about $1.1 billion) in the 2014/2015 financial year, from the KShs190 billion ($2.2 billion) range the year before, he told international media in an interview at State House, Nairobi, before travelling to Washington DC for the US-Africa Leaders Summit.

READ: Fitch Ratings says Kenya can still borrow more cash

“Our objective is to reduce our initial intended borrowing — which is about KShs190 billion — and see if we can reduce our exposure in the domestic market to about KShs100 billion,” President Kenyatta said.

These developments follow the success of Kenya’s debut Eurobond, which netted $2 billion. Kenya sought to raise $1.5 billion, but ended up bagging $2 billion, after its offering attracted bids four times its initial target.

President Kenyatta said he is optimistic that the reduction of domestic borrowing will lower interest rates, accelerate economic growth and create employment for the country’s youth. Previously, the domestic markets were the biggest source of Government borrowing to finance budget deficits, leading to higher interest rates.

READ: Kenya to borrow again next year, eyes no-interest Islamic bonds

“The extra supply of cash will, therefore, hopefully help to bring down bank lending rates to the productive sectors of the economy,” the President said.

Following the level of enthusiasm displayed by foreign investors in the Eurobond, the Government is likely to explore other bond options — a step that could attract more foreign capital and ease pressure on the country’s foreign exchange reserves.