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State’s appetite for local funds to up interest rates

BUSINESS
By James Anyanzwa | Jun 21st 2013 | 2 min read
By James Anyanzwa | June 21st 2013
BUSINESS

By James Anyanzwa

NAIROBI,KENYA: The Government’s growing appetite for credit is set to increase further in the next financial year (2013/2014). The move will put  pressure on the cost of borrowing.

According to Renaissance Capital’s Economic Update, the Government’s increasing reliance on domestic market to fund its projects puts pressure on interests, increasing them further.

 Cabinet Secretary for National Treasury Henry Rotich last week told Parliament in his Budget statement that the Government plans to finance over 60 per cent of its budget deficit through external borrowing and the remainder with domestic borrowing.

“Although this financial year borrowing is skewed towards foreign financing, the net domestic borrowing component will place upward pressure on domestic interest rates,” the Renaissance Capital report says. Increased borrowing by the State through issuance of  Treasury bills and bonds also crowds out the private sector from credit.

According to data from Central Bank of Kenya, gross government domestic debt increased by Sh164.6 billion to Sh1 trillion on April 12, 2013, from Sh858.8 billion at the end of June 2012.

Government securities accounted for 93 per cent of the gross domestic debt.

During the fiscal year, 2011/12, the Government adopted a policy restricting public debt to concessional loans.

 This was due to their low interest rates and longer repayment period and enhancing revenue mobilisation efforts by expanding revenue base.

Consequently, during the first half of the 2011/2012 fiscal year, Treasury resorted to alternative source of funding by way of a two-year syndicated loan of  Sh50 billion ($600 million). The loan was procured from a consortium of three foreign banks consisting Citibank, Standard Chartered Bank (UK) and Standard Bank of South Africa.


 

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