Treasury misses local borrowing target
National Treasury Cabinet Secretary Ukur Yatani.
The Treasury trailed its domestic borrowing target for the year to June by Sh82.8 billion, indicating the government’s increasing difficulties to attract investor funds to plug a growing budget deficit.
The state had planned to raise Sh688.1 billion from the domestic market by the end of June but only netted Sh605.3billion—marking a shortfall of about 14 per cent. Treasury’s domestic borrowing for the period to June 2022 comprised Sh425.8 billion from non-banking financial institutions, Sh179 billion from commercial banks, Sh125.5 billion from the Central Bank of Kenya(CBK) and Sh671 million (net repayment) to non-residents.
The government drawdown from deposits at the CBK amounted to Sh124.3 billion by the end of June. Comparatively, for the same period in the financial year 2020/21, the domestic borrowing amounted to Sh626.9 billion, comprising Sh230.9 billion from commercial banks, Sh327 billion from non-banking financial institutions, Sh67.9 billion (net repayment) to the CBK and Sh1.2 billion from non-residents. The state deposit to CBK amounted to Sh135.6 billion from other domestic sources for the period to June 2021.
Commercial banks
Official data showed that the stock of Treasury Bills held by commercial banks and non-residents recorded a net decrease of Sh49.1 billion and Sh2 billion respectively, in the year to June this year, while those held by non-banks increased by Sh31.9 billion.
“The stock of fixed rate bonds held by commercial banks and non-banks and recorded a net increase of Sh22.6 billion and Sh20 billion respectively, while those held by non-residents decreased by Sh2 billion,” the National Treasury said in its latest budget review report for the quarter ended June.
Investors are generally unwilling to lend the government billions of shillings in a push for higher interest rates—pointing to funding pressure for the incoming government.
For instance, the August Treasury bond sale fell Sh11.5 billion below target as investors demanded higher rates, forcing the CBK to leave bids on the table.
Bidders offered a total of Sh49.1 billion in the bond sale that targeted Sh50 billion, out of which the CBK accepted Sh38.5 billion.
Three-year security
The three-tranche bond consisted of three-year security, a 10-year offer, and another facility of 20 years. Investors demanded on average 12.45 per cent from the three-year paper, but the CBK was willing to pay a return of 11.8 per cent.
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They demanded 13.9 per cent against the set return of 12.3 per cent, while on the 20-year they sought 14.2 per cent versus a coupon of 13.4 per cent.
The net borrowing from the offer amounted to just Sh8.9 billion once maturing bonds worth Sh29.6 billion are factored in, leaving the National Treasury looking at a deficit on its borrowing target less than two months into the new financial year that started July 1.
