Domestic investors will fund a larger share of the additional
Sh2.13 trillion that President Uhuru Kenyatta’s administration targets
in the next four years.
This will give banks more room to deepen lending to the government at the expense of companies and households.
Nearly
Sh1.27 trillion will be tapped from domestic investors with foreign
markets funding the remainder Sh863 billion of the debt portion. The
funds will go into implementing Mr Kenyatta’s Big Four plans, the
Treasury projections show.
Increased domestic borrowing, analysts say, may hurt flow of
loans to the private sector with September 2016 legal ceilings on loan
charges still in place.
Banks controlled 55.5 per cent
of the nearly Sh2.50 trillion domestic debt as at September 14, Central
Bank of Kenya statistics show.
“Increased borrowing in
the domestic market squeezes out the private sector and, more so, with
rate caps, it is likely to exacerbate the subdued the private sector
credit growth you are already seeing,” said Churchill Ogutu, a senior
research analyst at Genghis Capital, on phone. “But borrowing from
external market also has some risks because of foreign exchange
fluctuations.”
Domestic borrowing through weekly sale
of Treasury bills and bonds is projected at Sh299.9 billion in the year
ending June 2019 from Sh366.5 billion in the year ended last June.
This
will, however, rise to Sh309.6 billion in the year to June 2020,
Sh310.90 billion in June 2021 and Sh345.7 billion in June 2022,
projections in the draft 2018 Budget Review and Outlook Paper indicate.
The reliance on domestic markets to bridge the gap in budget
bucks a trend where the Jubilee administration has since 2014 been
contracting more of foreign debt to build much-needed roads, standard
gauge railway, electricity plants and bridges.
External
debt is forecast to fall to Sh272 billion this financial year ending
June 2019 from Sh265.5 billion in the one ended June and Sh498.5 billion
the year before. New borrowing from foreign investors is set to further
drop to Sh217 billion in the year to June 2020 and Sh147.2 billion the
following year, according to the Treasury.
“Fiscal
policy over the medium-term aims at supporting rapid and inclusive
economic growth, ensuring a sustainable debt position by narrowing the
budget deficit and at the same time supporting the devolved system of
Government for effective delivery of services,” Treasury PS Kamau
Thugge.
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