Lo­cal in­vestors to fund big­ger share of Sh2.1trn ‘Big 4’ agenda

This will give banks more room to deepen lend­ing to the gov­ern­ment at the ex­pense of firms

Daily Nation (Kenya) - - BUSINESS - BY CON­STANT MUNDA

cmunda@ke.na­tion­media.com

Do­mes­tic in­vestors will fund a larger share of the ad­di­tional Sh2.13 tril­lion that Pres­i­dent Uhuru Keny­atta’s ad­min­is­tra­tion tar­gets in the next four years.

This will give banks more room to deepen lend­ing to the gov­ern­ment at the ex­pense of com­pa­nies and house­holds. Nearly Sh1.27 tril­lion will be tapped from do­mes­tic in­vestors with for­eign mar­kets fund­ing the re­main­ing Sh863 bil­lion of the debt por­tion. The funds will go into im­ple­ment­ing Mr Keny­atta’s ‘Big Four’ plans, the Trea­sury pro­jec­tions show.

In­creased do­mes­tic bor­row­ing, an­a­lysts say, might hurt the flow of loans to the pri­vate sec­tor with the le­gal loan ceil­ings in­tro­duced in the Septem­ber 2016 charges still in place.

Banks con­trolled 55.5 per cent of the nearly Sh2.50 tril­lion do­mes­tic debt by Septem­ber 14, Cen­tral Bank of Kenya sta­tis­tics show.

"In­creased bor­row­ing in the do­mes­tic mar­ket squeezes out the pri­vate sec­tor and, more so, with rate caps, it is likely to ex­ac­er­bate the sub­dued the pri­vate sec­tor credit growth you are al­ready see­ing," said Mr Churchill Ogutu, a se­nior re­search an­a­lyst at Genghis Cap­i­tal, on phone. "But bor­row­ing from ex­ter­nal mar­ket also has some risks be­cause of for­eign ex­change fluc­tu­a­tions."

Do­mes­tic bor­row­ing through weekly sale of Trea­sury bills and bonds is pro­jected at Sh299.9 bil­lion in the year end­ing June 2019, from Sh366.5 bil­lion in the year ended last June.

This will, how­ever, rise to Sh309.6 bil­lion in the year to June 2020, Sh310.90 bil­lion in

June 2021 and Sh345.7 bil­lion in June 2022, pro­jec­tions in the draft 2018 Bud­get Re­view and Out­look Pa­per in­di­cate. The re­liance on do­mes­tic mar­kets to bridge the gap in bud­get bucks a trend where the Ju­bilee ad­min­is­tra­tion has since 2014 been con­tract­ing more of for­eign debt to build roads, stan­dard gauge rail­way, elec­tric­ity plants and bridges.

Ex­ter­nal debt is fore­cast to fall to Sh272 bil­lion this fi­nan­cial year end­ing June 2019 from Sh265.5 bil­lion in the one ended June and Sh498.5 bil­lion the year be­fore. New bor­row­ing from for­eign in­vestors will drop to Sh217 bil­lion in the year to June 2020 and Sh147.2 bil­lion the fol­low­ing year, ac­cord­ing to the Trea­sury.

"Fis­cal pol­icy over the medium-term aims at sup­port­ing rapid and in­clu­sive eco­nomic growth, en­sur­ing a sus­tain­able debt po­si­tion by nar­row­ing the bud­get deficit and sup­port­ing the de­volved sys­tem for ef­fec­tive de­liv­ery of services," said Trea­sury Prin­ci­pal Sec­re­tary Ka­mau Thugge.

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