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December 16, 2018

Domestic borrowing exceeds Sh320 billion in seven months

Central Bank  governor Patrick Njoroge and National Treasury PS Kamau Thugge during the Green Bond consultative forum in Nairobi on May 24,2018
Central Bank governor Patrick Njoroge and National Treasury PS Kamau Thugge during the Green Bond consultative forum in Nairobi on May 24,2018

Kenyan government has borrowed Sh320 billion in bonds since January, pilling pressure on public debt that has since crossed Sh5 trillion forcing Treasury to hire debt managers.

This means the government has borrowed at least Sh6,666 for every Kenyan in bonds since January.

Consequently, the growing trend in bond issuance has pushed the country’s internal debt to Sh2.6 trillion up from Sh2.37 trillion in January. Every Kenyan therefore owes local lenders at least Sh54,166 in debt.

In an advertisement dated July 18, National Treasury sought to recruit 20 debt management and resource mobilization managers ostensibly to help government to manage its soaring debt amid pressure from international Monetary Fund (IMF).

According to Treasury PS Kamau Thugge, officers to be hired in jobs group M, N and P with salaries ranging between Sh46,230 and Sh112,660 are to provide guidance in determining borrowing ceilings for national and county governments and formulate debt management policies.

Data by CBK on public debt shows that while the country has relaxed on external borrowing after raising Sh200 billion via Eurobond sale in February, internal borrowing has peaked. External borrowing has stagnated at Sh2.51 trillion.

Although the banking regulator quoted internal debt at Sh2.44 trillion in May, this figure may be currently at more than Sh2.6 trillion when the monthly Sh40 billion bond issue is factored in.

On August 1, Central Bank announced a 10 year bond worth Sh40 for budgetary support in what has become a norm since January when it floated a 15 year infrastructure bond worth Sh40 billion with an interest rate of 12.5 per cent.

In February, it issued two bonds of seven and 10 years respectively worth Sh40 billion for budgetary support. The two bonds attracted interest rates of 10.25 and 12 per cent respectively. It had issued another two bonds of five and 20 years in March worth Sh40 billion.

The government issued two bonds of 15 and 20 years amounting to Sh40 billion in April and another 15 year bond of similar amount in May to support its budget activities.

In June, Kenya issued the longest bond since 2014. The Sh40 billion bond spanning 25 years attracted a handsome coupon of 13.4 per cent before returning to the market with a 20 year bond a month later seeking to raise the same amount for budgetary support.

During the post Monetary Policy Committee media brief on July 30, CBK governor Patrick Njoroge repeated his warning that the country does not have any more headroom for borrowing to finance development projects.

“Our borrowing has reached the maximum limit and the focus should now shift to Public Private Partnership non-debt models for projects. We cannot continue borrowing for spending on even good projects,’’ Njoroge said.

Although internal borrowing is much affordable since it is not subjected to currency fluctuation, economists are worried that excess internal borrowing by government will crowd out the private sector.

“The government is broke and needs money. Domestic borrowing is less complex in terms of conditions as opposed to international debt. The only worry is that it will crowd out private sector,’’ an economic consultant Morris Aron said.

Kenya’s debt appetite has worried international lenders with IMF compelling treasury to restructure its fiscal policy and cut on debts as a condition for a Sh150 billion standby facilities in March.

Treasury is expected to spend Sh870.52 billion on debt repayments in the current financial year, underlining the burden of expensive short-term debt the Treasury has accumulated in recent years.

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