Kenya to avoid local debt, faces higher costs abroad

Kenya may face higher borrowing costs abroad due to a bigger 2016/17 budget deficit but its improved management of domestic borrowing will avoid the kind of spike in government debt yields seen in the local market in late 2015, the IMF said on Friday.

Kenya’s budget deficit is forecast to climb to 9.3 percent of gross domestic product in the 2106/17 fiscal year starting on July 1, compared to below 8 percent in the current 2015/2016 financial year, a rise which has unnerved investors.

As it sought to raise funds domestically in October and November last year, yields on 91-, 182- and 364-day Treasury bills climbed above 20 percent, straining state coffers and hitting commercial bank borrowers and companies.

Armando Morales, the International Monetary Fund resident representative in Kenya, said that from July 1 Kenya would have a better cushion of domestic funds that had already been raised - more than Sh200 billion- easing some pressure on government finances in the next fiscal year.

“That is a positive development and it gives the government some room to feel that financing is not going to be tight,” he told Reuters.