The first move by Henry Rotich to finance the 2019/2020 Budget is a shs 40 billion loan

Given the expected economic growth and government projects including the government’s newly ‘Big Four Agenda’ of affordable housing, enhancing manufacturing, food security and health, many economists and financial experts projected an increase in the planned announcement of the 2019/2020 budget projections. They were not wrong; on June 13th 2019 the CS for treasury Henry Rotich walked in the National Assembly of Kenya and read a 3.02 trillion budget for 2019/2020 financial year, the highest in the Kenyan history. The current budget is actually shillings 10 billion higher than the previous 2018/2019 budget. Education as always got the largest cake of the budget taking home 473.3 billion this financial year.

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Ever since the Shs 3 trillion budget was raised, many Kenyans took issues with Henry Rotich. The problem wasn’t about the ambitious 3 trillion budget, but rather how the government was going to finance its KES 607.8 billion budget deficit. Last financial year, KRA failed to meet its revenue collection as projected so Kenyans are justified to be pessimistic on the ability of KRA to collect the expected shs 2.4 trillion in revenues. The obvious alternative, namely loans, is something Kenyans do not want to hear about, but that’s exactly what Henry Rotich has opted for. The shs 40 billion loan will be sourced locally, contrary to the previous moves when the CS of Treasury has looked to foreign markets to finance his budget. For example in May this year Kenya successfully secured a third Eurobond that was priced at KES 210 billion following an exhibition in UK and US.

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The newly acquired bond constitutes a dual – tranche -7 and 12 year incumbency trading at an amortization rate of 7% and 8% respectively. Economists were worried with how Kenya was drowning into high debt which is now standing at KES 5 trillion. Many said that borrowing was tactical but not a necessity, that the government is spending too much than it receives as revenues. “The government has enough intellectuals to advice the treasury on the way forward,” said Dr. Samuel Nyandemo a development Economist at the University of Nairobi.

As the country waits for Henry Rotich to soon venture into the international markets for more dollar loans, yesterday he flagged off domestic borrowing of KES 40 billion bond with a 15-year maturity. The CBK announced the sale of bond is open until July 23 2019. The CS said that he plans to raise a net Ksh 283.5 billion from domestic investors in form of bills and bonds to help plug the Ksh 607.8 billion hole in this year’s Ksh 3.1 trillion budget. How this is going to work out naturally depends on the investor’s decision. The decision will be based on whether they will accommodate the average yield set by the treasury at or they will have to bow down due to uncertain market future trends. The CS is confident enough that the market is stable due to continuous decline of government interest rates which shouldn’t worry investors. The investors had been bargaining for an average yield of 11.666% on the 15 year bond that matures in 2027. Well there are many considerations before someone decides to invest in government bond like accessing your risk profile and also objectives. For now we can only wait and see whether the CS will be able to achieve his budget deficit goal or if Kenya will be sorting out for another fourth Eurobond

Adrian Opiyo

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