Treasury stares at Sh410b payout to local T-bill holders

Churchill Ogutu (L) Senior Research Analyst Genghis Capital Investment Bank, Geoffrey Gangla (C) CEO Genghis Capital Investment Bank and Patrick Mumu (R) Research Analyst Genghis Capital (PHOTO: WILBERFORCE OKWIRI)

Treasury is expected to make a hefty payout of Sh410 billion to local investors with a good chunk of government papers maturing by end of March, this year.

An analysis by Genghis Capital, an investment company, noted that much of the payout would be for the one-year Treasury-Bill, short-term government security.

Churchill Ogutu, the head of research at Genghis Capital, noted that the elevated maturities will support liquidity in the market.

“Maturities in the first quarter of 2021 total Sh410.1 billion against a quarterly average of Sh293.7 billion in the last half of 2020,” read part of a report that was unveiled by Genghis Capital in Nairobi on Tuesday.

Of the big chunk of the loans to be repaid, 53.5 per cent was of the amount of the 364-day T-bill tenor.

However, the payments add to the fiscal burden that Treasury has been grappling with, owing to a tough business environment that has seen tax revenues dwindle. As a result, the National Treasury has fallen behind in the disbursement of cash to the county governments by two months.

Treasury plans to save close to Sh73 billion by requesting deferment of interest payments on government securities held by pension funds and insurance companies.

This is part of the National Treasury’s debt restructuring plan aimed at consolidating more funds to spend on the economy at a time when tax revenues are dwindling.

“The deferred interest will be amortised and paid with the interest due to being paid in the subsequent years up to the maturity of the security,” said Treasury in its Post Covid-19 Economic Recovery Strategy 2020-22.

“Insurance companies and pension funds currently hold Sh913 billion in government securities, meaning deferred interest will save the State approximately Sh73 billion in interest payments in the short-run and used to address the financing challenges created by the pandemic.”

Early last year, CBK was able to replace several Treasury Bills (T-bills) with a new infrastructure bond. “CBK conducted the inaugural switch on June 1, 2020, with the objective of lengthening the maturity profile of existing debt and to rebalance the T-bill portfolio which had a concentration in the 364-day T-bills, accounting for 86.5 per cent,” CBK said in the 2020 annual report.

Consequently, CBK added, Treasury bills decreased by 6.9 per cent as the domestic debt maturity for all securities improved from 4.94 years in June last year to 5.46 years in June this year. The average maturity of bonds, on the other hand, rose to 7.9 years.

Part of Treasury’s plan to save funds to be used for response against the effects of Covid in the next two financial years will be debt restructuring, with T-bills being replaced with Treasury bonds or long-term government papers.

This will lengthen the maturity structure of domestic debt by targeting over 80 per cent of domestic debt to be held in longer-term Treasury bonds.

“This will ease fiscal pressure from expensive external commercial debt servicing and decrease issuance of shorter-dated domestic government paper to reduce refinancing risk and the public debt burden,” said Treasury in its Post-Covid-19 Economic Recovery Strategy 2020-22.

Primary bond issuance in February and March will feature longer-tenor maturities in line with the 2020 medium-term debt management strategy.

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