Kenya to avoid local debt rate spike, faces higher costs abroad - IMF
24 June 2016, 20:27
Nairobi(Reuters) - Kenya may face higher borrowing
costs abroad due to a bigger 2016/17 budget deficit but its
improved management of domestic borrowing will avoid the kind of
spike in government debt yields seen in the local market in late
2015, the IMF said on Friday.
Kenya's budget deficit is forecast to climb to 9.3 percent
of gross domestic product in the 2106/17 fiscal year starting on
July 1, compared to below 8 percent in the current 2015/2016
financial year, a rise which has unnerved investors.
As it sought to raise funds domestically in October and
November last year, yields on 91-, 182- and 364-day Treasury
bills climbed above 20 percent, straining state coffers and
hitting commercial bank borrowers and companies.
Armando Morales, the International Monetary Fund resident
representative in Kenya, said that from July 1 Kenya would have
a better cushion of domestic funds that had already been raised
- more than 200 billion shillings ($1.98 billion)- easing some
pressure on government finances in the next fiscal year.
"That is a positive development and it gives the government
some room to feel that financing is not going to be tight," he
told Reuters, adding that the government and central bank had
raised cash while there was "abundant liquidity."
Rates on Treasuries in recent weeks have slipped. The yield
on the 91-day bill is now hovering at just above 7 percent.
"Although the terms of domestic financing are better than
before, the terms of foreign financing may go in the opposite
trend unless there is a revision of the fiscal projections," he
said. "It will be very difficult to approach creditors with a
larger deficit than the previous year and expect benign terms."
The government has suggested that although the deficit is
forecast at 9.3 percent for 2016/17, the actual figure is likely
to come in lower because ministries typically fail to spend all
their allocated funds on their development projects.
Finance Minister Henry Rotich said this month that the
overall 2016/17 deficit would be 691.5 billion shillings, with
225.3 billion raised locally and 150 billion shillings coming
from external commercial borrowing.
Development aid funding will make up the balance.