The National Treasury is cutting its expected net borrowing for the current fiscal year by Sh67.5 billion, a move that is expected to boost efforts by the Central Bank of Kenya (CBK) to bring down interest rates.
Budget documents tabled by the Treasury on Tuesday show a revision of net domestic borrowing for the 2023/2024 fiscal year to Sh407 billion from Sh474.5 billion, while the expected borrowing from external lenders has been revised upwards to Sh501.6 billion from Sh412.1 billion.
The changes indicate that the government anticipates higher disbursements from external financiers such as the International Monetary Fund (IMF) and the World Bank before the end of June.
By lowering the domestic borrowing target, the Treasury will hand the CBK the luxury of rejecting expensive bids in domestic debt issuances, thus backing the efforts by the government’s fiscal agent to cut the cost of domestic debt.
While rates are no longer going up as was the case in the first quarter of the year, the expected gradual fall that the CBK projected in its last monetary policy committee meeting last month has seemingly stalled, especially on the Treasury bills market.
In this week’s auction, the rate on the 91-day T-bill rose to 15.86 percent from 15.82 percent, while that of the 182-day paper was up to 16.48 percent from 16.46 percent. On the 364-day tenor, the rate remained unchanged at 16.49 percent.
Analysts at NCBA Capital had identified the large volume of maturing domestic debt as potentially hurting the efforts to cut rates but noted that a reduction in new borrowing would help the CBK’s cause.
“If the Supplementary budget prints a lower target, then we could see a further sudden drop in rates,” NCBA analysts said in a note last week.
According to the NCBA analysis, the volume of maturities in May and June stands at Sh369 billion, with May accounting for the lion’s share at Sh245 billion.
Treasury’s Supplementary II Budget estimates tabled last Thursday show that the government had made net borrowings worth Sh387.1 billion from the domestic market in the nine months to March 2024, meaning that it will need to borrow just Sh19.9 billion more locally over the next two months.
The revenue end however remains a concern, with the government lagging behind target over the nine months to March.
The Supplementary Budget II shows that the total revenue collected by the government (including appropriations-in-aid) stood at Sh1.856 trillion, against a target of Sh2.126 trillion.
“This shortfall (of Sh270.7 billion) was mainly attributed to under collection of ordinary (tax) revenues by Sh255.21 billion and ministerial A-I-A by Sh15.7 billion,” said the Treasury.
“Ordinary revenue collection amounted to Sh1.585 trillion (9.8 percent of GDP) against a target of Sh1.84 trillion (11.4 percent of GDP).”
