State seeks Sh30b in Treasury bonds

SUMMARY

• State spent heavily on this year's General Election
• CBK invites bids for two debt instruments whose sale concludes on August 22

NAIROBI, KENYA: The Government has floated new five-year and 10-year Treasury bonds to bolster budgetary support after billions were spent on the General Election.

Treasury aims to raise Sh30 billion through both credit instruments, with the bond attracting an annual interest rate of 12 per cent, while the interest for the five-year bill will be market-determined, according to a circular released on Thursday by the Central Bank of Kenya (CBK).

“CBK, acting in its capacity as fiscal agent for the Republic of Kenya, invites bids for the bonds whose period of sale begins on August 7, 2017 and concludes on August 22, 2017. The minimum amount for their purchase will be Sh50,000,” said the circular.

The latest issue is expected to push up Kenya’s debt, with the Government having floated bills worth Sh744 billion and bonds worth Sh1.3 trillion as at July 28, 2017.

Total domestic debt stands at Sh2.1 trillion.Treasury also has the ongoing M-Akiba bond issue, through which it seeks to raise Sh1 billion with a green shoe option of Sh3.8 billion.

The offer, launched on June 30, was to run until July 21 but was extended for two months to September 30 after the Government failed to reach the Sh1 billion target. It only raised Sh140 million in three weeks.

The M-Akiba was piloted in April with a Sh150 million target which was oversubscribed. 

As the debate on Kenya’s piling debt rages, Treasury Cabinet Secretary Henry Rotich remains assertive that the country’s debt levels are manageable.

This is despite the spending on massive infrastructural projects driving the debt levels to about 50 per cent of the nation’s gross domestic product.

Sustain debt

Mr Rotich has argued time and again that Kenya can sustain a debt-to-GDP ratio of 74 per cent, which implies that the country can borrow Sh4.4 trillion at the current GDP level.

A recent analysis done by the Institute of Economic Affairs, however, shows that both external and internal debt service charges have been increasing over time, with the exception of the fiscal year 2011/2012, when there was a slight dip, and that the continued borrowing could soon prove to be unsustainable.