Government Has Borrowed 43.8% of 1st Quarter Foreign Borrowing Target

The government of Kenya has borrowed 43.8 percent of the first quarter of the Fiscal Year of 2017/2018.

According to the Quarterly Economic and Budget Review, the government has only borrowed 7.5 billion shillings of the targeted 17 billion shillings.

Last week, the government signed a new 8-year commercial loan of 77.0 billion shillings from the Eastern and Southern Africa Trade and Development Bank (TDB), formerly PTA Bank at 6.7 percent above the 6-month London Interbank Offer Rate (Libor) currently at 0.6 percent to pay off debt holders of the 2015 syndicated loan, who declined to extend maturity.

As at 1st December 2017, the Treasury had drawn 40.7 billion shillings from its overdraft facility with the Central Bank of Kenya (CBK), the highest level since 44.2 billion shillings in July 2016 as they bridge the cash flow deficit from the current borrowings and revenue collections.

The government exceeded the first quarter of the FY’2017/18 spending targets for both recurrent and development expenditure at 102.4 percent and 102.9 percent absorption rates, respectively, which may trigger increased domestic borrowing to meet expenditure requirements.

The total revenue collections for that quarter stood at 345.6 billion shillings compared to the target of 388.0 billion shillings, indicating that 89.1 percent of the target was met.  This suggests that there exists possible upward pressure on interest rates as the government seeks to bridge the gap.

According to Bloomberg, yields on the 5-year and 10-year Eurobonds declined by 0.2 percentage points during the week, to close at 3.6 percent and 5.6 percent respectively.

Since the mid-January 2016 peak, yields on the Kenya Eurobonds have declined by 5.2 percent points and 4.0 percent points for the 5-year and 10-year Eurobonds, respectively, due to the relatively stable macroeconomic conditions in the country.

The declining Eurobond yields and stable rating by Standard & Poor (S&P) are indications that Kenya’s macroeconomic environment remains stable and hence an attractive investment destination. However, concerns from Moody’s and the International Monetary Fund (IMF) around Kenya’s rising debt to GDP levels may see Kenya receive a downgraded sovereign credit rating.