Roundup: Cash-strapped Kenya gov't borrows more from domestic market

High interest rates on Kenya's Treasury bills have not dissuaded a cash-strapped Kenya government from borrowing more from the public.

Yields on the 91, 182 and 364 days Treasury bills all average 21 percent, rising from about 10 percent in June.

The rates have been surging since July when the CBK's raised its benchmark rate to 11.5 percent as it sought to mop up excess liquidity in the market to save a weakening shilling, which has strengthened at an average of 103 against the U.S. dollar, from 106.

This week, yield on the 91-day bill stood at 21.4 percent, up from 20.6 percent the previous week.

Similarly, the yields on the 182-day and 364-day bills stood at 21.6 percent and 21.5 percent respectively, up from 20.3 percent and 20.7 percent respectively.

The three-year high yields saw investors scramble for the three bills the Central Bank of Kenya (CBK) put on sale. As in the last three weeks, the bank auctioned bills worth a total of 117 million U.S. dollars, seeking to raise 39 million dollars from each.

The 91-day bills attracted the highest bids as subscription hit a massive 427 percent.

"The total number of bids received was 621 amounting to 165 million dollars, representing a subscription of 427.4 percent," CBK's Acting Director of Financial Markets John Birech said in a brief on the auction received Saturday.

While CBK had sought to raise 39 million dollars, the bank ended up accepting 122 million dollars, three times more than what the government had sought to borrow.

Similarly, for the 182 days bills, the government received a subscription of 142 percent. "The total number of bids received was 202 amounting to 55 million dollars," said Birech.

The 364-day bills, on the other hand, recorded a subscription of 316 percent, the highest in recent times.

"The Central Bank received 518 bids amounting to 123 million dollars."

For the two papers, the CBK accepted bids worth 51.5 million dollars for the 182-day bills and 87 million dollars for the 364-day bills, again more than the 39 million it had sought to raise from each of the two securities.

Kenya's domestic debt stood at 14 billion dollars as at October 2, according to the CBK. The debt had dropped marginally to 13.6 billion dollars end of September but has been on the rise as interest rates on the bills surge.

Analysts note that the Kenya government has stepped up borrowing from the domestic market to finance its activities.

The government is cash-strapped, making it fail to meet its numerous obligations that include paying salaries, funding free primary education, counties and domestic and foreign debt repayment, according to the Treasury.

Treasury Principal Secretary Kamau Thugge Thursday told a parliamentary committee that the government is facing a cash crisis, with the Kenya Revenue Authority having collected only 1.8 billion dollars in the first two months of the current financial year.

Extensive borrowing from the local market, though an expensive option, offers immediate relief to the government to meet its financial demands.

Next week, the CBK will put on sale 91-day, 182-day and 364-day bills worth 117 million. Enditem