Ksh 5.9Bn Traded During the Week as CBK Mops Up Ksh 10Bn on Friday

The week ended on a slow note having traded 5.9 billion shillings down from 8.5 billion shillings recorded in the previous week, largely expected to be the CRR week.

The biggest headwinds in the past week were the CRR cycle which ends on the fourteenth of each month coupled with offer-side pressure as investors looked to exit positions in preparation for this week’s infrastructure bond auction.

The shilling gained sharply on Friday from a low of 103.80 to close at 103.25. While the KES overnight rate closed at 9.27% after the pressure seen in the money market over the week, we expect this to hold until later in the week when it may begin to ease marginally if the CBK does not intervene.

The CBK came in to mop up KES 10Bn on Friday but only received bids worth KES 650Mn at 8.4% signaling the market is generally square (balanced).

The latest report from Treasury indicates that tax income in the month of October was at 87.79 billion shillings bringing the cumulative tax revenue in the first four months of FY17/18 to 405.21 billion shillings.

The report also offered insight into the recently-passed Supplementary Budget Estimates. Recurrent expenditure and first-charge Consolidated Fund Service (CFS) were increased by 61.83 billion shillings and 36.46 billion shillings respectively while development spending was reduced by 37.43 billion shillings.

The increase in recurrent expenditure was in tandem to cater for the obligatory needs, in particular, financing of the October presidential polls, that had arisen while development spending was rationalized to priority projects.

The report also showed slow absorption of development funds with 60.24 billion shillings disbursed, equating to 15.51 percent of total 388.48 billion shillings allocated to development expenditure in the financial year. This portends a growth slowdown and with an increase of 36.46 billion shillings to 658.23 billion shillings in public debt service in the fiscal year under the CFS, further crowds out funding towards public development.

In addition, disbursements to county governments totaled 14.94Bn in October (KES 35.37Bn in the first four months of FY17/18) which has mainly been towards the provision of essential services and payment of salaries. Of great concern to counties is that it relies heavily on central government disbursements; 84.69% of county revenue in FY13/14 – FY16/17 period. We opine that the county governments should devise ways to increase own-source revenue which has averaged 12.39% in the similar period.