Treasury's shift to longer term debt picks up pace

By James Anyanzwa

The Government raised its level of domestic borrowing through treasury bonds by 620 basis points last month, depicting a gradual shift from the short-tenored treasury bills.

This is in line with the Government’s debt management strategy, which seeks to lengthen the maturity profile of its domestic debt and clamp down on soaring interest charges.

According to Central Bank’s weekly economic report, the share of Treasury bonds increased from 73.7 per cent in June to 79.9 per cent as at December 31, 2010, while that of Treasury bills declined from 26.1 per cent to 20.1 per cent.

The Government’s gross debt increased by Sh60 billion (9.1 per cent) from Sh660.3 billion in June last year to Sh720.2 billion as at December 31, 2010.

According to the Central Bank, Kenya’s gross debt increased by Sh60 billion to Sh720.2 billion in December last year, but Treasury bills declined by Sh26.2 billion. [PHOTO: Govedi Asutsa / Standard]

But this build up in Government debt reflected largely Treasury bonds (Sh81.3 billion), while overdraft at the Central Bank and other domestic debts took up only Sh5 billion and Sh0.6 billion respectively.

On the other hand, Treasury bills and long-term securities declined by Sh26.2 billion and Sh0.8 billion, respectively. The average time to maturity of Government securities increased from four years three months in June last year to five years one month in the same period.

The interest cost on domestic debt during the period comprised of interest and other charges on Treasury bills and Treasury bonds amounting to Sh26.9 billion and Sh6.8 billion, respectively while interest on Government overdraft at the Central Bank amounted to Sh0.5 billion.

The Central Bank’s market leaders forum started operations in 2003 with a prime objective of lengthening the tenor of Government securities and to raise money to meet Treasury’s requirement. The group, which consists of among others commercial banks, insurance companies, fund managers, stockbrokers and investment bankers, pushed the tenor of government securities to 25 years with the market ready to take up even a 30-year bond.

SHORT-TERM DEBT

Longer maturity profile of domestic debt - the average maturity profile of domestic debt in Government securities rose from three years nine months in June 2009 to four years seven months by June last year, then to five years one month or ratio 23:77 in Bills and bonds by November last year.

And with a functioning secondary bond market in place, the Government no longer faces rollover risks associated with short-term debt.

The Government securities market posted good performance during the first auctions of the 182-day Treasury bill this year, registering 118.6 per cent subscription.

The Government had offered for sale Treasury bills worth Sh4.5 billion during the week and received bids totalling Sh11.6 billion. A total of Sh5.3 billion bids were accepted and of the total bids accepted.