Risk-averse investors shun Kenyan local debt, deepening fiscal woes

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Nervous investors are avoiding long-dated Kenyan Treasury bills and bonds, central bank data showed, putting more strain on the government’s plans to pivot to domestic borrowing after scrapping controversial tax hikes.
The latest debt sale, on August 1, saw the benchmark 1-year Treasury bill get less than a tenth of demand for the amount on offer. That weak demand is making it even more expensive and complicated โ€“ to fund the debt-burdened government’s budget.
“It is going to be a problem and it feels like they are just kicking the can down the road,” said Kenneth Minjire, senior associate for debt and equity at AIB-AXYS, a Nairobi-based brokerage.
President William Ruto abandoned tax hikes worth more than 346 billion shillings ($2.67 billion) after protests that killed more than 50 people.
The U-turn forced the finance ministry to hike local borrowing targets by 42% to 404.6 billion shillings ($3.12 billion), even as securities, apart from 91-day Treasury bills, were already underperforming at auction.
Demand for Kenyan debt instruments at the central bank’s weekly auction fell precipitously as domestic disruptions and violence engulfed major urban centres, data from the central bank showed.
Investors offered to buy just a third of what the central bank offered in Treasury bills during the week of June 24, when the turmoil erupted, while the subscription rates for that week’s bond auction were just 2.4%.
Before the protests, the subscription rates for Treasury bills was 94.7%, while bonds were oversubscribed.
Central Bank governor Kamau Thugge downplayed concerns over local financing, noting it was early in the financial year, and that even the revised borrowing target was lower than the previous financial year.
“I really don’t see that we will not be able to meet the domestic financing requirements,” he told a news conference on Wednesday.
23 days ago

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