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Government gets into more borrowing, targets domestic market

By Walter Odhiambo

The Government is ahead of its domestic borrowing for the current fiscal year, having borrowed Sh235.2 billion against a target of Sh177.6 billion, according to CytonnInvestments. The government has only borrowed Sh205.8 billion, of the budgeted foreign borrowing, representing 44.5 per cent of its foreign borrowing target of Sh462.3 billion, and the Kenya Revenue Authority (KRA) has already missed its first half of 2016/2017 fiscal year revenue collection target by 3.2 per cent, and it is expected to miss its overall revenue collection target of Sh1.5 trillion for the current fiscal year.

This will in effect make the government tap into local borrowing in the domestic market to plug in the deficit that is likely to arise.’’Given that the government has less than 2.5 months to the close of the current fiscal year and the fact that borrowing from the foreign market is a much longer process than borrowing from the domestic market, the government is likely to use the domestic market to plug in the deficit that is likely to arise,’’ said Cytonn.

Domestic borrowing however may cause uncertainty in the country’s interest rate environment considering domestic borrowing may exert upward pressure on interest rates and in effect result in longer term papers, not offering investors the best investors the best returns on a risk adjusted basis. It is due to this that Cytonn believes it is prudent for investors to be biased towards short-term fixed income instruments.

Government data from the Central Bank of Kenya shows the country has so far borrowed $2.3 billionin this financial year alone that is some two months to a close, against a set target of $1.7 billionto beborrowed. In addition to this, the government has also borrowed some $2 billion of the budgeted foreign borrowing, which was $4.6 billion representing 45 percent of the targeted amount. The country’s public debt currently stands at $37 billion, according to the CBK, with domestic borrowing accounting for $19.5 billionand external sources the rest of the amount.

However, according to Cytonn, the government has remained disciplined by rejecting bids from lenders that are above market. The local market responded to this positively by bidding less aggressively as indicated by the high total overall acceptance rate of 81.0 per cent compared to 78.0 per cent at the start of February, an indication that investors are bidding within the ranges that are deemed acceptable by the Central Bank of Kenya.

 

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Written by The Kenyan Weekly

The Kenyan Weekly newspaper is a fresh general-news publication published on newsprint once a week.

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