Treasury in race to fund mini-Budget

The Treasury is under pressure to accept a larger proportion of investor bids at the auctions as it races to fill a financing gap that has been widened by the supplementary budget.

Analysts at investment bank Sterling Capital say the relatively friendly ratio of maturities to expected new debt issues favours an acceleration of domestic borrowing for the government.

Total domestic borrowing as at the end of November 2019 stood at Sh221.8 billion, equivalent to 43.2 percent of its total revised target of Sh514 billion from Sh429.4 billion.

The new target is inclusive of new borrowing of Sh391.4 billion and net repayments worth Sh122.6 billion.

“Domestic borrowing at 43.2 percent of the total target (as per Treasury data at the end of November) remains within our run rate although this is likely to fall due to revisions in the supplementary budget,” said Sterling in a fixed income note.

“We expect aggressive borrowing from the domestic market in respect of the remainder of the borrowing target as well as the Sh146.3 billion funding gap from the supplementary budget part of which will be financed through domestic borrowing.”

The Treasury has this month floated a Sh50 billion bond in dual five and 10 year tranches, but there are no bond maturities until April.

On the Treasury bill side, maturities stand at 101.8 billion in January, Sh88 billion in February and Sh107 billion in March.

The Treasury floats Sh24 billion worth of T-bills weekly, with the first three auctions of this month attracting total of Sh90 billion in bids versus a target of Sh72 billion, although 80 percent of these volumes came in the most recent sale last week.

Of the bids made this month, the government has accepted Sh75 billion.

Should the T-bill bids be sufficient to cover maturing short term debt, then the bond takings will count as new borrowing in its entirety, helping the government close the financing gap at a faster pace.