The government is betting on long tenure Treasury Bonds to refinance the maturing domestic debt in its medium term debt management strategy.
This will be a shift from local borrowing from the banks that have seen domestic debt hit the Sh4.47 trillion mark.
A shrinking international borrowing space and slow economic growth has seen the state fail to meet its revenue targets forcing it to revert to the international market for expensive loans.
In the new plan, the National Treasury has signalled the issuance of new switch bond auctions (exchanging a particular series of existing bonds held by investors with a particular series of selected bonds) this year as part of plans to manage debt by prolonging the maturity of outstanding domestic securities.
The exchequer plans to issue medium to long-term bonds to replace shorter-dated instruments such as Treasury Bills as it faces record-high domestic maturities in 2023.
National Treasury data shows that from the Sh3.71 trillion domestic debt, Treasury Bonds account for 84 percent, Treasury Bills 14 percent and others mainly overdraft from Central Bank of Kenya two percent.
The uptake of governments long term paper has however been slow halting plans to use the funds in offsetting domestic debt.
According to National Treasury Principal Secretary Chris Kiptoo public debt stock is expected to surpass the Sh10 trillion debt limit in the Financial Year 2023- 2024.
“The public debt is projected to be Sh9.413 trillion as at end June 2023 implying a borrowing space of Sh 587 billion in the FY 2023/24,” said Kiptoo.
Already the Treasury has initiated the process of amending the debt ceiling from the numerical number of Sh10 trillion to a debt anchor of 55 per cent of debt to GDP in present value terms.
Currently the present value of debt as a percentage of GDP is at 60 percent and projected to decline to 53.1 percent in financial year 2025-2026 under the fiscal consolidation programme policy stance outlined in the 2023 Budget Policy Statement.
As at December 2022 the government owed Sh4.67 trillion in external debt and Sh4.47 trillion in domestic debt.
In a bid to cushion the government from further borrowing Treasury will cut the budget for the next financial year by at least Sh133 billion.
In its 2023 Medium Term Debt Management Strategy, the stock of public and publicly guaranteed debt grew from Sh8.03 trillion (61.6 percent of GDP in PV terms) by end of December 2021 to Sh9.14 trillion (60 percent of GDP in PV terms) in the end of December 2022.
President William Ruto’s administration has been on a revenue mobilisation strategy to reduce the dependency on external borrowing to finance its operations.
In the current setting, multilateral debt account for 47 percent of the debt equivalent to Sh2.21 trillion.
Bilateral debts account for 26 percent (Sh1.21 trillion) out of which China accounts for 67 percent and commercial debts at 27 percent (Sh1.25 trillion) with the Eurobond accounting for 19 percent.
The growth in public debt is attributed to external and domestic borrowing and appreciation of the foreign currency exchange rate against the Kenyan shilling during the period under review.
