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This is how Kenya can fund its budget deficit

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By Staff Writer

The National treasury will have to rely on other options of borrowing to finance this year’s budget gap as unfavorable conditions continue to make external credit unattractive.

Kenya currently lies with the safer bounds on debt levels, according to International Monetary Fund (IMF). However, going forward, economists have warned that there are risks associated with the changing funding patterns that could see the country’s debt levels rise.

Treasury has also been cautioned from over borrowing which is feared could plunge the country into a severe debt crisis in the absence of alternative measures.

The Rotich-led team will pursue several cheaper funding windows to fill treasury basket through syndicated facilities, Eurobond(s) and direct bilateral or concessional loans.

As at December 2015, Kenya’s total debt had stood at Sh3.2 trillion compared to Sh 0.6 trillion a similar period in 2000 – with the composition of debt being both in domestic and external borrowings.

One of the options will include issuance of Islamic bonds or Sukuk, which is a Sharia’h-compliant bond.

Treasury had this year said it would consider issuing sovereign debt, including potentially its inaugural sukuk.

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In recent credit boom in emerging markets, Kenya performed reasonably well, breaking the record for the biggest debut sovereign bond of any African nation in June 2014, with the issuance of the $2.75 billion (Sh279.3 billion) Eurobond – using the rates at that time.

Treasury CS Henry Rotich said in February that the government was yet to come up with the exact amount it plans to raise from the Sukuk Bond it hopes to float in the new financial budget that will also depend on the financing gap in the Sh1.2trillion-budget.

Treasury also will have an option at looking at the possibility of floating a ‘diaspora bond’ for Kenyans living in the diaspora as well as Samurai bond, a yen-denominated bond, which also has low interest and a possibility of having concessionary terms.

The government is presently drafting a law through The Islamic Finance Act which is being spearheaded by several industry players including the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA) are expected to put in place practical infrastructure necessary to unlock the sector.

Depending on the budget deficit, Rotich and his team will also have to comprehend how much he can raise domestically through T-Bills.

The new cheaper loan facilities will equally help the treasury to monitor financing discrepancy, keep domestic interests low as well as manage the stability of the shilling – presently at Sh100 mark against the US Dollar – which is considered stable.

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