Treasury Cabinet Secretary Henry Rotich and Treasury's director of
budget Geoffrey Mwau at a past event. FILE PHOTO | SALATON NJAU | NMG
Summary
- The government has upped its borrowing through Treasury bonds and bills this year, taking advantage of high demand from investors.
- The accelerated borrowing from the domestic market—mainly banks— is however bad news for the private sector, which has been struggling to secure loans from the lenders.
- Heavy borrowing by the Jubilee administration has seen the threshold of debt to gross domestic product (GDP) cross well over the 50 percent mark, raising concerns over ability to repay the loans.
The Treasury borrowed an average of Sh2.1 billion every day,
racking up Sh126.4 billion in loans between January and February and
raising Kenya’s total debt load to Sh5.4 trillion.
Latest
debt data published by the Central Bank of Kenya (CBK) shows that
domestic debt rose by Sh142.6 billion to Sh2.692 trillion in the period,
while external debt contracted by Sh22 billion to Sh2.707 trillion.
The
government has upped its borrowing through Treasury bonds and bills
this year, taking advantage of high demand from investors.
Accelerated borrowing
The
accelerated borrowing from the domestic market—mainly banks— is however
bad news for the private sector, which has been struggling to secure
loans from the lenders.
In the 12-months to February,
credit to the private sector grew by 3.4 percent, still far below the 12
to 15 percent considered to be ideal for powering strong economic
growth. Commercial banks’ holdings of government debt went up by 13
percent in the same period, to Sh1.46 trillion.
Heavy
borrowing by the Jubilee administration has seen the threshold of debt
to gross domestic product (GDP) cross well over the 50 percent mark,
raising concerns over ability to repay the loans.
The
Treasury’s appetite for more debt from domestic lenders is likely to
continue due to lower-than-targeted revenue performance by the Kenya
Revenue Authority.
The target for domestic borrowing for the current fiscal year
stands at Sh310 billion, while external creditors are expected to plug
in Sh321.5 billion in order to fill the Sh635 billion fiscal deficit.
By the end of February, the government had borrowed 66 percent of the domestic target from the market.
In the first quarter of the year, Treasury bill subscriptions averaged 147 percent.
Even
with the rejection of expensive bids by CBK, the stock of outstanding
securities rose by Sh67.5 billion in the first two months of 2019.
Treasury
bonds have also become a favourite for investors. In January and
February, the Treasury sought a total of Sh102 billion in bond auctions
(including one tap sale), receiving total bids of Sh247 billion and
accepting Sh115.3 billion.
Securities market
The
Treasury, however, took advantage of the high inflows from the
securities market to cut its outstanding overdraft at CBK by Sh26
billion to Sh19.7 billion in the period.
Maturing
securities are expected to keep the market liquid, which should make it
easier for the Treasury to achieve its borrowing target.
External
borrowing has been harder for the government, which has in the past few
months said it is being held back by high interest demands especially
for commercial debt.
The Treasury is yet to issue the
expected Eurobond well into the second half of the fiscal year, and is
instead mulling taking up a syndicated loan to roll over maturing
foreign debt.
The medium term debt strategy report
released by the Treasury in February revealed concerns over the
sustainability of the external debt load.
The proposal is to cap external deficit financing at 38 percent, while raising domestic borrowing to 62 percent.
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