Ruto's Government Remains Below Its Prorated Borrowing Target By 43.8%

Ruto’s Government Remains Below Its Prorated Borrowing Target By 43.8%

By Standard Investment Bank / Published February 12, 2024 | 2:19 pm

During the week, liquidity in the money markets improved for the second consecutive week, partly due to government payments that offset tax remittances.

The average interbank rate decreased to 13.27%, down from 13.39% in the previous week. Nonetheless, average traded volumes increased by more than half to KES 24.88bn from KES 15.54bn in the previous week.

Reflective of the improved liquidity, subscriptions for Treasury bills more than doubled with the overall rate coming in at 213.0%, up from 107.5%, in the previous week. The Central Bank received bids totaling KES 51.12bn and accepted KES 48.76bn translating to an acceptance rate of 95.4%.

T-bill yields increased to 16.50% (up 12.91bps), 16.63% (up 12.73bps), and 16.86% (up 17.73bps) for the 91-day, 182-day and 364-day papers respectively.

In the primary bond market, the government seeks to raise KES 70.0bn through a new infrastructure bond issue, IFB1/2024/8.5. The bond has an effective tenor of 6.8 years and the coupon will be market-determined.

At the current run rate and given the February rate hike by the Central Bank, we anticipate more aggression from investors than previously observed – key to note, the bond bears the longest tenor among all new issuances over the last eleven months.

The government remains below its prorated borrowing target by 43.8%, with the current net borrowing position at KES 167.98bn compared to the prorated target of KES 299.13bn.

We hold an optimistic view that bond issuances under the prevailing interest rates will support the net borrowing figure in the coming weeks. We also note that the government tends to issue an infrastructure bond just before the conclusion of a fiscal year to meet the targets – Infrastructure bonds are more attractive compared to Treasury bonds.