Kenya overshoots domestic borrowing target by Sh100bn

Money Markets

Passers-by at the National Treasury’s head office in Nairobi. PHOTO | FILE 

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

In Summary

• Estimates by Kestrel Capital and Cytonn Investments show the Treasury has borrowed over Sh290 billion largely as a result of lower-than-expected donor disbursements and tax revenues.
• The Treasury was running behind schedule in borrowing locally at the end of last December as it was not keen to get cash at elevated interest rates. This year has seen accelerated borrowing as interest rates have come down.
• State’s appetite for local funding seen as an attempt to plug a tax collection deficit by the KRA.

Kenya has over-borrowed locally by about Sh100 billion in the current fiscal year surpassing a revised full-year target of Sh191.15 billion, numbers compiled by analysts show.

Estimates by Kestrel Capital and Cytonn Investments show the Treasury has borrowed over Sh290 billion largely as a result of lower-than-expected donor disbursements and tax revenues.

Kestrel estimated that the Treasury had by May 16 borrowed Sh275.2 billion, meaning the target had already been exceeded by nearly Sh84 billion. Since May 16, the date of their report, the State has borrowed more through Treasury bills and bonds.

“We believe in the first 11 months of the 2015/16 fiscal year approximately Sh962.6 billion has been raised against maturities of Sh687.5 billion resulting in a new borrowing of Sh275.2 billion... indicating that the Treasury is way past their annual target,” said Alexander Muiruri, fixed income researcher at Kestrel.

Faster disbursements

The estimates revision was done early in the year before the full extent of the shortfall in cash needed to run the government until the end of the financial year next month was known.

Cytonn said the Treasury would look to push for faster disbursements from the donors, even for amounts scheduled for the next fiscal year.

“With one month left to the end of the current fiscal year, the government has surpassed its local borrowing target which will go towards plugging the deficit by the Kenya Revenue Authority (KRA) tax collection and will look to shift their attention to achieve the foreign borrowing target and start front-loading for the next fiscal year,” said Cytonn.

READ: State’s debt appetite in focus as payments take up half of taxes

The Treasury was running behind schedule in borrowing locally at the end of last December as it was not keen to get cash at elevated interest rates. This year has seen accelerated borrowing as interest rates have come down.

Currently interest rates are coming down and investment analysts are forecasting that they are bottoming out and therefore advising investors to run for the available government securities before the honeymoon runs out.

“With interest rates still coming down, but showing signs of bottoming out at the current levels, we advise investors to lock in funds in short- to medium-term paper for tenors between six months and one year as the rates are attractive on a risk-adjusted basis,” said Cytonn.

Dampening effect

For the next fiscal year, the exchequer is targeting to raise Sh241 billion through domestic borrowing though this figure is also subject to change depending on the amount raised through taxes and releases by foreign lenders.

Kenya also intends to raise some of the cash through a Eurobond, though the details are yet to be firmed up