This archive report was first published on 21 August 2019.
On August 21, 2019, the Treasury announced a significant increase in its domestic borrowing target for the current financial year, which began in July.
Acting Treasury Secretary Ukur Yatani raised the target to Sh300.31 billion, a 5.9 percent increase from the initial target of Sh283.5 billion set in the June 13 Budget Statement by then Treasury CS Henry Rotich.
The increased borrowing target hints at a possible shortfall in projected tax revenue, a common reason for the Treasury to raise its borrowing targets.
Despite the upward adjustment, Standard Investment Bank (SIB) expects yields on government paper to maintain a downward trajectory, citing increased liquidity in the market and reduced interest rates.
According to SIB, average interest on domestic government debt has been trending lower this year due to increased liquidity, which some attribute to the ongoing demonetisation of the old Sh1,000 notes.
Commercial banks have slowed down lending to businesses and households since the enforcement of legal ceilings on interest rates in September 2016, leaving them with increased cash stocks for investment in risk-free government debt.
The Treasury has set a tax collection target of nearly Sh1.81 trillion this financial year for the Kenya Revenue Authority (KRA), which is Sh370 billion more than the Sh1.44 trillion collected in the year through June 2019.
With reduced interest rates in the domestic debt markets, the Treasury will be encouraged to borrow, and average yields on Treasury bills have been at their lowest since mid-2013.
"I expect the trend to continue although a lot will also be determined if the rate cap will be adjusted come September or they will keep to the court ruling of one year," said Kenneth Minjire, the head of securities at Genghis Capital, last month.
