Kenya to reduce its domestic borrowing

by Elayne Wangalwa 0

The government is banking on the successful issuance of the Eurobond. Kenya secured bids worth 8.8 billion US dollars, 6.8 billion US dollars more than the government’s target of 2 billion US dollars, making it the largest debut for an African country in the sovereign bond market.

“Our objective is to reduce our initial intended borrowing which is about 190 billion Kenyan shillings and see if we can reduce our exposure in the domestic market to about 100 billion Kenyan shillings,” President Uhuru Kenyatta told the media before travelling to attend the US-Africa Leaders Summit currently underway in Washington DC.

By reducing local borrowing by 90 billion Kenyan shillings, the Kenyan government is considering widening its foreign-debt portfolio with bonds denominated in yen and Shariah-compliant securities.

“I see this as a very positive thing by the Kenyan government that they have decided to undertake. At the same time, we have been seeing in the recent past that the government has been crowding out the private sector and what that means is that the interest rates in the market keep going up,” Eric Munywoki, research analyst old mutual securities told CNBC Africa.

According to Kenyatta, the reduction of domestic borrowing will lower interest rates, hasten the country’s economic growth as well as create employment for the youth.

Previously, the domestic markets were the key source of the government’s borrowing to finance the budget deficit as a result of the state being unable to meet its expenditure commitments using domestically raised revenue and externally sourced grants and borrowing.

Last year, the rate of increase in domestic borrowing outpaced external borrowing. Kenya’s public debt hit 52 per cent of national output in 2013, up from 44.5 per cent the previous year.

Still public debt remains one of the major economic policy issues confronting the Kenyan government.

“The extra supply of cash will, therefore, hopefully help to bring down bank lending rates to the productive sectors of the economy,” Kenyatta said.