Treasury room for more debt shrinks

The Treasury’s headroom for new domestic borrowing has nearly vanished in the first eight months of the current financial year amid low bond uptakes and poor tax receipts.

Latest exchequer statistics indicate the Treasury had tapped nearly Sh378.40 billion in net debt from domestic investors such as banks, fund managers and insurers, an equivalent of 96.67 percent of the Sh391.45 billion full-year target.

The net domestic debt for the July 2019-February 2020 was Sh66.96 billion, 21.50 percent higher than the same period a year earlier.

That left Central Bank of Kenya (CBK), the government fiscal agent, with a thin room to take in a maximum of Sh13.05 billion for the remaining four months.

The limited room comes at a time of tight liquidity in global markets due to economic effects of the measures taken to contain coronavirus amid low local subscription for government paper.

That ruins chances of tapping external debt sources such as Eurobond and syndicated loans at cheaper rates.

“The liquidity dry up in the global market will dent foreign loan disbursements and issuance of commercial financing (or at expensive terms for the latter),” analysts at Genghis Capital wrote in a note.

The Sh391.45 billion net domestic borrowing goal is, however, a deviation from the Sh300.7 billion in Budget Policy Statement (BPS) projections, which forms the basis for public spending and revenue mobilisation.

“Net domestic borrowing figure oscillates within the financial year due to weekly repayments, but must close at Sh300.7 billion by end June 2020 or an amount approved by the National Assembly during Supplementary Budget within the financial year,” Haron Sirima, the director-general for public debt management at the Treasury, said last month.

Overall, taxpayers will be saddled with a Sh514.03 billion additional domestic load this financial year as approved by legislators, including Sh122.58 billion set to come from extension of tenure of maturing debt, technically known as rollover.