Treasury ahead of target in domestic borrowing on low maturities

The government’s net borrowing from the domestic market hit Sh304.78 billion in the first seven months of the current fiscal year, going ahead of target for the period due to low Treasury bond maturities since October.

Latest exchequer statistics indicate the Treasury has now taken up 77.8 percent of its full year net domestic borrowing target of Sh391.45 billion. Ideally, the prorated target for borrowing after seven months would be 58.3 percent or Sh273 billion.

That leaves the Central Bank of Kenya (CBK), the government’s fiscal agent, with limited room to take in a maximum of Sh86.66 billion for the remainder five months from February under the gazetted domestic borrowing target.

The Treasury has set a Sh391.45 billion fresh borrowing goal for the full-year period ending June 2019, with additional Sh122.58 billion set to come from extension of tenure of maturing debt — technically known as redemption or roll-over.

Overall, taxpayers will be saddled with a Sh514.03 billion additional domestic load this financial year which was approved by the National Assembly when the lawmakers approved Supplementary Budget early last December.

While investors in Treasury bills usually rollover their debt as they largely use the short-term public debt window as a cash flow management tool, bond redemptions have been depressed since the fiscal year started last July.

CBK data shows the recent redemption came in last September at Sh46.21 billion accompanied by Sh13.58 billion in repayments and August when Sh15.87 billion redemptions were captured.

With limited room to borrow heavily from the domestic market, the Treasury is likely to turn to external sources to fill in the budget deficit of Sh748 billion.

Kenya faces a high refinancing risk with about Sh1 trillion ($9.91 million), or 34.9 percent, of domestic of the Sh2.9 trillion ($28.38 million) maturing in less than a year from last December, Treasury data shows.

“The government could face challenges in rolling over such bonds in an environment of no interest rate caps, low subscription rates and overexposure of commercial banks to these assets,” World Bank Group warned last October in an update on the Kenyan economy.