The Treasury is set to borrow Sh20 billion to plug a budget gap amid high interest rates in the market.
The government one-year bond, which went on sale Monday, comes at a time when interest rates are on a three-year high.
In last week’s auction, the 364-day Treasury bill rate was at 21.498 per cent.
“Investors are expecting higher and higher interest rates and they will be quoting higher rates for this one-year bond,” AIB Capital trader Ronald Lugalia said.
SECOND BOND
This is the second bond in two weeks, after Central Bank issued another one-year Sh30 billion bond at a rate of 19.062 per cent.
The government is also set to borrow Sh5 billion in the market this month through a debut M-Akiba bond.
The rates for the mobile phone-based bond that will go for as low as Sh3,000 will be set in the prospectus to be released earliest October 16 for the paper that will go on sale on October 21.
SYNDICATED LOAN
This comes as the Treasury also announced plans to get a Sh80 billion syndicated loan in two weeks to unlock the cash crunch currently affecting government business.
A National Treasury Ministerial Tender Committee is in talks with Standard Chartered, Stanbic and Citi Bank to arrange for the urgent credit.
This means government will soak in Sh135 billion in a matter of weeks, a move that is likely to see interest rates rise in the short run, but will cool down as government gets crucial money to meet recurring expenditure.
The high appetite for debt may also end up crowding out the private sector and making it harder for companies to access capital, in turn hurting economic growth.
The highly ambitious estimates of 7 per cent economic growth have recently been revised to 6.5 per cent by the International Monetary Fund.
“Commercial banks will be looking to lock in this bond because the government will be offering better returns than lending ordinary clients,” Mr Lugalia said.
SHORTFALL
Kenya expects to finance a budget shortfall of Sh340 billion from external financing and Sh229 billion from the domestic market.
A report by Cyton Investments indicated that the government was behind schedule in executing internal borrowing which would mean increased activity in short term fixed instruments.
By OTIATO GUGUYU
