Local debt target worth Sh403bn puts Treasury on a litmus test

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The Treasury may find it challenging to raise the 2020/21 domestic financing target, increasing the chances of public spending cuts in the mid-term. According to Kestrel Capital, this data puts the local financing a quarter more significant than the previous fiscal year.

According to analysts from the firm, Treasury has only mobilized Sh391 billion for the fiscal year. Already this puts the government at a shortfall with Treasury now left the grueling task of raising the proposed Sh493 billion as per the 2020/21 budget.

“The Treasury had already raised Sh391 billion domestically in fiscal year 2019/20 by borrowing Sh411 billion in Treasury bonds and paying back Sh20 billion in T-bills. The domestic target of Sh493 billion for FY20/21 was thus unrealistic,” said Analysts Alexander Muiruri.

As per Kestrel Capital data, the overturning the deficit may leave the government reducing credit for the private sector and bond market.

“There is enough liquidity in the system to fund the deficit. However, there won’t be enough to leave to fund private sector credit and could reduce secondary market bond turnover.”

Kestrel Capital still indicates that a changing deficit  with the Covid-19 pandemic. This will go hand-in-hand with the continuing trend of finance adjustments.


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