Kenya’s Domestic debt crosses 2 trillion mark

Kenya’s gross domestic debt has crossed the Sh2 trillion mark, indicating the government’s high appetite for debt to finance the national budget. Data released by the Central Bank of Kenya (CBK) shows the stock of local debt, including Treasury bills and bonds, stood at Sh2.008 trillion as at May 19, an increase of about Sh65 billion since the figure was last made public in March.

The March update released by the Treasury showed Kenya’s total public debt has now crossed Sh4 trillion, but the weekly CBK data does not show the latest foreign debt component. Domestic debt has increased by a cumulative Sh114 billion since January 27, when the borrowings stood at Sh1.894 trillion.

The debt is expected to rise further in the coming months as the government moves to plug a Sh524.6 billion deficit in the budget for the 2016/17 fiscal year. Some Sh268.6 billion is expected to be raised from the domestic debt market while external borrowing is projected at Sh256 billion. The borrowings, coupled with higher tax collections, will fund the Sh2.62 trillion budget.

The data shows that most of the increased debt has been borrowed from local banks, which have cut back lending to businesses and individuals since capping of interest rates late last year.

Banks held 55 percent of the total domestic debt as of May 19, raising their stake from 51.6 per cent on January 27. This came as holdings by other classes of investors, including insurance firms, pension funds, and individuals declined. Parastatals, meanwhile, maintained their share of the government securities at 6.5 per cent. Increased purchase of government debt by banks has been prompted by a cutback in lending to the private sector in the wake of interest rate controls.

Listed lenders last year increased their investment in T-Bills and bonds by Sh153.1 billion seeking risk-free double-digit returns, reducing their lending at a maximum of 14 percent to private sector borrowers. Banks have said they cannot accommodate risky borrowers at the interest rate of 14 percent, a move that has seen many individuals and small businesses denied credit.

The 11 publicly traded lenders held Sh550.2 billion of government bonds and T-Bills as of December, raising the financial investments 38.5 per cent from Sh397.1 billion a year earlier according to data compiled. Lending by the Nairobi Securities Exchange-listed firms meanwhile grew at a lower rate of 6.3 percent in the period compared to 17.2 percent the year before.

Equity Bank increased its holding of treasuries 135 per cent to Sh100.6 billion in the review period, topping the list of lenders who retreated to the safety of government debt. Diamond Trust Bank more than doubled its portfolio of the securities to Sh74.3 billion while that of HF Group jumped 90.4 per cent to Sh4 billion. The lenders continued to invest more in treasuries in the first quarter, a trend that is expected to persist.