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Kenya stuck in a KSh845 billion budget hole and KSh1 trillion pending bills with CBK seeking KSh60 billion to fund infrastructure projects

Kenya stuck in a KSh845 billion budget hole and KSh1 trillion pending bills with CBK seeking KSh60 billion to fund infrastructure projects in the current fiscal year.

Due to a budget deficit, the Kenyan government plans to sell a 14-year bond to raise Sh60 billion to support infrastructure projects in the current fiscal year.

In order to fill its Sh845 billion budget hole, the government has to raise more than Sh578.6 billion from the domestic market in the current fiscal year.

“Central Bank of Kenya, acting in its capacity as fiscal agent for the Republic of Kenya, invites bids for the above bond whose terms and conditions are as follows… The Bond will be tax-free as is the case for infrastructure Bonds as provided for under the Income Tax Act,” CBK said in the notice. 

Due to investor desire for higher interest rates, the government has been finding it difficult to raise money domestically at this time. 

As a result, the Central Bank of Kenya (CBK) was forced to accept pricey offers that were higher than the industry average of 14%.

The bond’s interest rate will be decided by the market, according to the CBK, the government’s fiscal agent.

Investors won’t have to pay taxes on the interest they get, which may lead to a higher subscription rate.

Ordinary bonds often have a withholding tax of 10% to 15%, which drastically reduces the yield for investors.

This bond could come in handy to complete ongoing infrastructure development projects and even help jumpstart stalled projects.

This is even as the current administration inherited over Sh500 billion worth of pending bills owed by government agencies, meaning more bonds could be floated in the near term.

In total, pending across the country including county government and pension liabilities are very high. 

“Pending bills are in excess of Sh1 trillion, the Sh500 billion is for the national govt. Add devolved units. Then add pension liabilities,” commented George Bodo, director at Callstreet Analytics in a past interview. 

Kenya had Sh8.4 trillion worth of public debt by June this year meaning a new bond will push public debt over Sh9 trillion and closer to Sh10 trillion.

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