Kenya’s short-term borrowing costs set to rise as growth slows

A decline in Kenya’s short-term borrowing costs, which saw yields more than halve in the past month, is set to reverse as slowing growth puts pressure on government finances, according to economists including Faith Atiti, a research analyst at Commercial Bank of Africa Ltd.

Rates on 91-day Treasury bills tumbled to 9.65 percent at an auction on Nov. 6, from 13.6 percent a week earlier and as high as 22 percent last month. Those yields may rise in coming months as the government borrows more in the domestic market to counter slowing tax revenue, Atiti said by phone from Nairobi, the capital, on Thursday.

“With the shortfall in revenue, they will pick as much as they can from the domestic market,” Atiti said. “How else will they fund the deficit?”

Kenyan Treasury Secretary Henry Rotich on Wednesday cut this year’s economic growth forecast to as low as 5.8 percent after a series of deadly militant attacks hurt Kenya’s tourism industry, the country’s second-biggest foreign-currency earner. While visitor arrivals are now on the mend, agriculture, which accounts for about a quarter of gross domestic product, could struggle against an expected decline in rainfall caused by the El Nino weather phenomenon.

Supplementary Budget

The government will probably raise its domestic-borrowing target by 20 percent to a net 265 billion shillings in a supplementary budget next year, according to Alexander Muiruri, head of fixed income at Kestrel Capital Ltd. That would see short-term interest rates climb as high as 16 percent, he said.

“We may have over-corrected, rates came down too fast,” Muiruri said by phone. “They will correct upwards to between 15 percent and 16 percent.”

Yields on 182-day and 364-day securities eased to 10.2 percent from 12.3 percent, and 12.1 percent from 13.6 percent respectively at an auction this week.

 – Bloomberg [Felix Njini]