Treasury cuts 2014/15 domestic borrowing by close to quarter

Kenya: The Finance ministry cut its domestic borrowing target this fiscal year by close to a quarter to Sh144.8 billion, saying projected revenue shortfalls and higher expenditure prevented a larger cut.

National Treasury Cabinet Secretary Henry Rotich (Pictured) had set a local borrowing target of 190.8 billion shillings in the budget last June but a revised budget policy statement issued on Wednesday showed the State would borrow a lower amount.

East Africa’s biggest economy wants to cut local borrowing in order to lower domestic lending rates and stimulate growth.

The presidency said in August the country would reduce local borrowing by close to half, reflecting the Government’s desire for lower local interest rates.

Right time

“We are reducing it from Sh190 billion to Sh144 billion. That (August) was even too early to project. This is the right time to revise,” Rotich told Reuters by phone yesterday from the World Economic Forum in Davos, Switzerland.

The forum kicked off on Thursday with the goal of “improving the state of the world.” In practice, it’s a massive networking event that brings together 2,500 heads of state, business leaders, philanthropists and artists.

The Treasury said in the budget policy statement released on Wednesday that there was a projected revenue shortfall of Sh17.8 billion in the current fiscal year that ends on June 30, due to sluggish collections of income, import and investment income taxes.

There were further funding needs that had not been budgeted for, thus limiting the local borrowing target cut, it said.

The local borrowing in this financial year represents 2.5 per cent of Gross Domestic Product (GDP), down from 4.0 per cent in the previous fiscal year, reflecting the impact of the Government’s issuance of the debut sovereign bond. Kenya raised $2 billion via the Eurobond last June in two tranches of five and 10 years. It tapped the Eurobond market again last month by increasing the size of the debut bond by $750 million.

Kenya sold Eurobonds to help fund infrastructure projects aimed at helping the economy become a middle-income economy by 2030 and to help repay a $600 million syndicated loan. Rotich said the $2 billion Eurobond success had raised its profile among investors, adding that local corporates could now take advantage of the country’s strong credit rating to access the international bond market.

He noted that the bond had set a standard that would enable the private sector to issue international corporate bonds in the international capital markets. Local firms have traditionally relied on private lenders to finance their expansion. In the recent past, a number of institutions have grown appetites for corporate bonds, which have low funding costs and offer large amounts.

UAP Group raised Sh2 billion to finance its growth, while NIC Bank and Cooperative Bank raised Sh5 billion and Sh4.6 billion, respectively.