Ruto administration will face an uphill task in meeting borrowing target, CBK boss warns
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CBK boss warns of hurdles by William Ruto administration meeting borrowing target in the new fiscal year
CBK boss warns of hurdles by William Ruto administration meeting borrowing target in the new fiscal year.
Outgoing Central Bank of Kenya (CBK) governor Patrick Njoroge has cautioned that the government will have a difficult time meeting its borrowing goals from the domestic market in the upcoming fiscal year.
The CBK claims that obtaining the Sh521.5 billion from the domestic market is a difficult task that runs the risk of having unfavorable results at a time when investors are hard to attract.
The CBK is now requesting that the National Assembly order the Treasury to reduce the anticipated domestic borrowing for the fiscal year 2023–2024 due to market problems.
“The domestic market has continued to support growing budgetary financing requirements. However, due to elevated financing needs, the capacity of the domestic market to finance deficits, especially in the last two financial years has been limited. The CBK raised 89 percent of the borrowing programme target in the 2021/2022 fiscal year and 57.3 percent (Sh249.1 billion) of the 2022/2023 borrowing target as of May 31, 2023,” the apex bank says.
This comes as the National Assembly’s Budget and Appropriations Committee has recommended that the House increase the planned spending for the next financial year by Sh80.7 billion to Sh3.69 trillion.
Of the proposed increase, Sh56.5 billion is earmarked for recurrent spending while the remaining Sh24.2 billion is designated for development.
The CBK says the high appetite for financing the government’s revenue shortfalls from the domestic market threatens market risks.
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“Tight domestic conditions continue to prevail due to delayed budgeted external financing against the backdrop of elevated inflationary pressures, heightened geopolitical tensions, and significant financial market volatility,” says the CBK.
“The domestic borrowing target for 2023/2024 is quite ambitious due to limited market capacity. In our view, this higher borrowing target is likely to have a disproportionately negative impact on yield curve stability and market confidence risking contagion across the total value of outstanding debt stock,” the CBK says.
The apex bank has fired this warning shot at a time investors have been shunning long-term government securities and concentrating on short-term instruments.
In mid-April, the government was compelled to cancel the auction of a 15-year bond on low appetite from investors.
In May, the government issued two tap sales on a three-year bond, an indication that the Exchequer has switched gears to lean on shorter-term bonds as it confronts the market realities of low appetite.
This warning on fiscal dominance comes as Dr. Njoroge exits the stage, paving the way for Dr. Kamau Thugge as the tenth governor of the CBK.
MPs approved Dr. Thugge’s nomination on Wednesday.
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