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Kenya raises internal borrowing to plug budgetary deficit

Xinhua, July 8, 2016 Adjust font size:

Kenya has put up for sale Treasury bonds worth 300 million U.S. dollars as it seeks to raise money from the domestic market for budgetary support.

Facing an over 6.8 billion dollars hole in its 23 billion dollars budget for the 2016/2017 financial year amid low tax collections, the East African nation has no choice but to borrow both internally and externally.

Last month, the government through the Central Bank of Kenya (CBK) floated a two-year and 15-year bonds worth 300 million dollars, which were massively oversubscribed, raising 500 million dollars.

Kenya, this time round, is selling a five-year bond with a 12 percent yield and a 20-year bond with a 14 percent interest rate, the CBK prospectus showed Friday

The five-year bond will be sold for about 10 days while the 20-year for about a month, according to the apex bank.

The sale of the bonds to be listed at the Nairobi Securities Exchange, however, is being made at a time when subscription on the short-term papers has declined due to falling yields.

This week, as in the past, the CBK put up for sale 91, 182 and 364 days Treasury bills, all valued at 158 million dollars.

The 91-day bill whose yield has fallen to a low of 7 percent, attracted bids worth 19 million dollars, representing a subscription of 49 percent. On the other hand, 182-day Treasury bill attracted bids worth 27 million dollars, a 46 percent subscription and 364-day 10 million dollars, representing 18 percent subscription.

According to analysts, the low yields on the short-term papers may push investors to the long-term securities, occasioning massive subscription.

The government is likely to intensify further domestic borrowing in the first half of this financial year to cater for the huge deficit in the budget.

Treasury in a recent debt paper noted that it will borrow 2.3 billion dollars from the domestic market and 4.5 billion dollars from the external sources.

Kenya's domestic debt currently stands at 18 billion dollars or 29 percent of the Gross Domestic Product (GDP) while external debt at 16 billion dollars.

The country's overall public debt stands at 60 percent of the country's GDP.

The key driver of growth in external debt has been a disbursement of syndicated loans from commercial banks, according to Treasury. Endit