Political stability to ease borrowing route, analysts say

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Capital markets

Political stability to ease borrowing route, analysts say


Treasury building in Nairobi on June 11, 2020. PHOTO | SILA KIPLAGAT | NMG

The successful presidential transition and improved market liquidity should help the performance of the government’s domestic borrowing plans going forward, analysts said, underscoring the expected clarity of the new administration’s fiscal plans.

The Treasury is struggling to meet its bond issuance targets in the current fiscal year, due to investor uncertainty over the election and investors’ demands for higher rates in a doldrums environment. high inflation.

Analysts at city-based investment bank AIB AXYS Africa say easing uncertainty should help performance on September’s Treasury bond issue, which is seeking to raise 50 billion shillings and whose sale closes today.

In the first two months of the financial year (July and August), the government issued three bonds for a total of 110 billion shillings, but only managed to raise 54.2 billion shillings.

Analysts had previously anticipated an undersubscription in the September selloff, which began ahead of the presidential petition hearing that resulted in the confirmation of Dr. William Ruto as Kenya’s fifth president.

“We expect oversubscription largely due to improved liquidity in money markets coupled with the passing of the cloud of uncertainty following the conclusion of election petitions and the ensuing swearing-in. , the improvement in liquidity over the past few weeks, as seen in the two weeks of oversubscription in Treasury bills, is likely to drive higher subscription rates,” AIB AXYS Africa said in a note. prior to the auction.

“We expect the slowdown in adoption by banks to be replaced by renewed interest from international investors who we believe have also steered clear of the local primary market due to election-related risks.

The below-average performance of the government’s domestic borrowing program is of concern, given continued difficulties in accessing external loans due to the high rates charged by lenders.

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