CBK cancels Treasury bond, jeopardizing the country’s hopes to seal its budget deficit

Kenya may have other option but to turn to foreign borrowing to fix its huge budget deficit, this even as  every Kenyan including those born today owe the world at least Sh70,000

Treasury’s budget deficit stands at Sh516 billion in the current financial year.

This follows the unexpected cancellation of a Sh30 billion treasury bond by the Central Bank of Kenya today.

The cancellation of the auction comes barely a month after the central bank cancelled the auction of the 364-day Treasury bill

Initially, the bond was to have a 13.500 percent coupon. It will take bids until January 24 and auction the bond on January 25 whose maturity is 5 years.

In the last two auctions, the government rejected expensive bids from investors, given that it is ahead of its domestic borrowing target and hence under no pressure to borrow expensively.

However, this change of events coupled by harsh economic times brought about by the prevailing dry spell and upcoming general elections may force the state to either go for the foreign debt or push domestic banks further for loans

Sources close to the treasury revealed to Dhahabu Kenya that it is considering   raising Sh156 billion through a syndicated loan.

According to analysts, this is likely to cause uncertainty in the interest rate environment as the government might have to plug in the deficit likely to arise from the lag in revenue collection and foreign borrowing from the domestic market, a move which may exert upward pressure on interest rates.

The Kenya Revenue Authority (KRA) has already missed its revenue collection target for the first quarter of 2016/2017 financial year.

The tax man is expected to raise Sh1.332 trillion target by the end of the 2016/17 financial year. The country’s budget deficit increased by a percentile to 9.6 this year, up from 8 per cent in 2015/2016 year


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