Treasury to borrow Sh30 billion locally

Central Bank Governor Patrick Njoroge. The CBK on November 30, 2015 advertised a nine-year amortised bond that would fund projects in the energy sector (Sh9.65 billion), water (Sh10 billion) and transport (Sh10.35 billion). PHOTO | NATION MEDIA GROUP 

In Summary

• The CBK Monday advertised a nine-year amortised bond that would fund projects in the energy sector (Sh9.65 billion), water (Sh10 billion) and transport (Sh10.35 billion).
• However economists have raised concern over the increasing appetite for local loans, which has seen Kenya’s internal debt rise by Sh102 billion in the past two months alone.

By OTIATO GUGUYU
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The government plans to borrow Sh30 billion locally for infrastructure projects, even as it seeks to protect itself from currency risks.

Central Bank of Kenya (CBK) Governor Patrick Njoroge told Bloomberg News in an interview in Cape Town that the country was ready to take action to protect the economy from potential market turmoil when the US begins raising interest rates, having built up enough buffers to prepare for the event.

The CBK Monday advertised a nine-year amortised bond that would fund projects in the energy sector (Sh9.65 billion), water (Sh10 billion) and transport (Sh10.35 billion).

This is the first bond issued to fund development projects this financial year as the government seeks to take advantage of lower lending rates in the market.

The bond has a weighted tenure of seven years, with a coupon of 11 per cent.

“This issuing of the long tenured bond is an indicator that the government views that the interest rate environment has stabilised and is now ready to issue long tenor bonds,” Cytonn Investment said in its weekly note.

Given that infrastructure bonds are tax-exempt, they tend to be very attractive to both local and foreign investors.

RISE IN DOMESTIC DEBT
However economists have raised concern over the increasing appetite for local loans, which has seen Kenya’s internal debt rise by Sh102 billion in the past two months alone.

“The more the government borrows domestically, the more it crowds out the productive sectors of the economy and ties up money, which should go into growing the economy,” Mr Robert Shaw, an economist told the Daily Nation.

According to CBK’s weekly statistics, domestic debt that stood at Sh1.38 trillion on October 9, has risen to Sh1.47 trillion.

Last week, the government borrowed Sh30.7 billion in a five-year bond after issuing two one-year State papers in September and October to fund the budget deficit.

Kenya expects to finance a budget shortfall of Sh340 billion from external financing and Sh229 billion from the domestic market.

In October, the National Treasury took up Sh60 billion ($588 million) external loan from syndicated banks to deal with a cash crunch.

Although dollar denominated loans are usually offered at cheaper interests rates, their exposure to currency fluctuations make them risky when the shilling loses ground to the greenback.