Treasury secretary Henry Rotich. FILE PHOTO | DIANA NGILA
By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com
In Summary
The government is likely to delay new external
borrowing until the last quarter of this year due to high cost of money
in external markets for emerging and frontier market bond issuers,
Treasury secretary Henry Rotich says.
Mr Rotich said the government had been monitoring the
markets and talking to investors to gauge the most appropriate time to
go for foreign debt, and was prepared to wait further until October
before borrowing.
He cited the recent Brexit vote as one of the
occurrences that have affected international money markets by causing
investors’ flight to safety that will likely lead to their asking for
higher premiums on emerging market investments.
The implications of the delay would be that the
government is unlikely to cut domestic borrowing in the next two months,
potentially raising further short-term interest rates that have been
going up in recent weeks.
It also means that bank lending rates are likely to
stay high as the lenders have the alternative to put their money in
risk-free government debt.
“We must have flexibility because were living in a
world that is changing every day, for example where no one had expected
Brexit and its effects,” said Mr Rotich.
“The timing will depend on the environment. If
there are issues globally that mean that entering the market will see us
pay more, then we can wait for the right opportunity, like when we did
the Eurobond in 2014 and managed to get more favourable rates compared
to peer countries in Africa.”
Kenya’s Eurobond went to market with a coupon rate
of 6.875 per cent for the 10-year offer, which is now attracting a yield
of 7.2 per cent. This is a drop from 8.9 per cent at the beginning of
the year.
The government is planning to borrow up to Sh503.1
billion from external lenders this fiscal year, to be combined with
domestic borrowing of Sh241 billion (with repayments at Sh55 billion) as
it looks to plug a budget deficit of Sh689 billion.
The heavier tilt towards external debt is ideally
meant to ease the pressure on the domestic debt market and avoid
crowding out the private sector, in turn lowering interest rates.
Central Bank of Kenya data shows that external debt
stood at Sh1.667 trillion by March, while domestic debt as at August 5
was Sh1.8 trillion.
This means that Kenya’s overall public debt has doubled over the past four years, having stood at Sh1.6 trillion in 2012.
The external component has only gone up
significantly in the past two years courtesy of the Sh280 billion ($2.8
billion) Eurobond and loans from China for construction of major
infrastructure projects such as railway.
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