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The East African : Jan 21st 2017
14 NEWS WEAK FINANCIAL POSITION Kenya looks to borrow $1.5b for budgetary support, shilling cushion The widening deficit is pushing shilling towa≥ds ≥eco≥d lows By ALLAN OLINGO The EastAfrican K enya is looking to borrow more money from the com- mercial market in the face of a widening deficit that is pushing the shilling towards record lows, and to meet urgent expenditures occasioned by a biting drought. Last week, the government reopened a $300 million bond first issued in 2007, helping it save on issuance costs — underscoring the urgency with which the country needs to beef up its financial position. The reopening came on the same day that the government was at pains to deny that it had selected four banks to arrange a syndicated loan of $800 million. According to Treasury insid- ers, the denial followed misgivings by senior members of the executive that the timing was not right to announce that the government was tapping the commercial market in view of the political competition ahead of the August 8 elections. Proceeds of the reopened bond will be received next month, bringing to $550 million the loans Kenya has taken out since the beginning of the year after borrowing $250 million from regional development financier PTA Bank. PTA Bank disbursed $100 million immediately, and the country now expects to receive the last tranche. Last month, Treasury Cabi- net Secretary Henry Rotich said that the country planned to raise $1.5 billion by the end of this financial year in June from the commercial market. The money is expected to ease budgetary pressures exerted by the general election in August, ongoing infrastructure projects as well as food imports and other drought mitigation efforts, in the face of underperformance in tax collections. “We opine that the CBK set- tled on the bond, which has a five-year tenor, on account of the shilling’s weak outlook in the near term causing most investors to employ a short term duration strategy,” Genghis analyst Churchill Ogutu said in a fixed income note. Kenya has seen its budget defi- cit rise in this financial year by 9.6 per cent of gross domestic product, from 7.2 per cent in the The EastAfrican JANUARY 21-27,2017 Rwanda deficit falls on highe≥ ≥evenues By IVAN R. MUGISHA The EastAfrican RWANDA NARROWED its primary deficit in the 2015/16 fiscal year on the back of improved tax collections and lower government spending. Both the government and the In- ternational Monetary Fund had projected a current account deficit of 5 per cent, but a recent review for the year found a deficit of 3.5 per cent, the IMF said in its latest country report. Higher tax collections and spend- CASH CRUNCH AT A GLANCE ing below what had been programmed for the year contributed to the low deficit, the IMF said at the end of the Sixth Policy Support Instrument Review earlier this month. Statistics from the Rwanda Reve- nue Authority indicate that Rwf986.6 billion was collected in 2015/16, overshooting a target of Rwf949.2 billion ($1.16 billion) by 3.9 per cent. Total expenditure amounted to Rwf1.49 trillion ($1.4 billion) against a revised budget of Rwf1.52 trillion ($1.85 billion). The lower spending was occa- sioned by a rollover of infrastructure projects in the energy and roads sectors, whose implementation had been delayed. The implementation was rolled over into fiscal year 2016/ In late December, Kenyan legislators endorsed the Budget Policy Statement to restrict the National Treasury from borrowing beyond six per cent of the GDP, instead restricting the debt ceiling further in 2018 to five per cent of the GDP until it will reach 4 per cent in 2020. $1.4b Total expenditure in Rwanda in the 2015/ 16 fiscal year 17, raising the possibility of a spike in spending this year. Officials however say that the 2015/16 financial year, to currently stand at $5.16 billion till end of June. Treasury wanted to borrow $3.22 billion internationally and $2.17 billion from the domestic market. The shilling is also facing pressure from the dollar, sliding to the current 103.83, which has also seen the country’s Central Bank spend close to $1 billion of its reserves over a two month period in a bid to cushion the local unit. In October 2015, Kenya took up a $750 million through a syndicated loan arranged through CFC Stanbic, Standard Chartered and Citi to plug in the gaping $6 billion deficit in the budget, which has been made worse by missed revenue targets. Heavy maturities The country is also facing heavy maturities next month of $1.37 billion, and a further $911.9 million between May and June, which will need to be rolled over through new borrowing, possibly through the domestic market. The Treasury has so far avoid- ed borrowing from the international market despite a $2.87 billion target for external debt. In late December, Kenyan We opine that the CBK settled on the bond, which has a five-year tenor.” Genghis analyst Churchill Ogutu legislators endorsed the Budget Policy Statement to restrict the National Treasury from borrowing beyond six per cent of the GDP, instead restricting the debt ceiling further in 2018 to five per cent of the GDP until it will reach 4 per cent in 2020. This now means that the government will not be allowed to borrow the $5.82 billion (7 per cent of GDP) it intended to supplement the fiscal budget in the 2016/17 financial year. Data from the Division of Revenue Bill tabled in parliament late last year shows that the country’s annual debt repayment is set to reach $5.85 billion this coming financial year, a 38.5 per cent jump from $4.21 billion spent on public debt in 2016, compared with a projected 12 per cent growth in tax collection. Last month, global rating agency Fitch maintained its long-term rating on Kenya’s foreign and local currency at B+ but with a negative outlook, citing concerns over the country’s fiscal deficit and public debt. “Although Kenya has been cutting back on its budget deficit — expected to come in at 7.1 per cent this fiscal year against the original budget target of 9.7 per cent — the consolidation is likely to face headwinds, notably from underperforming revenues,”it said. According to government ac- counts printed in last month, the Kenya Revenue Authority will be under pressure to achieve its annual target of $12.28 billion after it collected only $4.47 billion in the five months to November. At this rate, KRA would have a shortfall of $1.5 billion by the close of the financial year in June. Kenya’s ratings are con- strained by its low GDP per capita, sizeable twin budget and current account deficits and rising public and external debt ratios,” said Fitch in a statement. rollover will have minimal impact on this year’s deficit, which is also expected to remain within the 5 per cent band. “We negotiated with the IMF and agreed that the projects that were not implemented last year will be implemented this year – meaning that we will increase our spending by around one per cent of GDP. This is still within our fiscal deficit target,” Leonard Rugwabiza, the chief economist at the Ministry of Finance, told The EastAfrican. “We need to make sure that our deficit is controlled. We will try to reduce the deficit while paying more attention to key priority projects,” he added. However, the IMF noted that the country’s external debts rose when national carrier RwandAir failed to repay a portion of its debt on time last year. Rwanda supported RwandAir’s operations with a net lending of Rwf40 billion. The Ministry of Finance said it has put in place a “stringent debt monitoring system.” “Rwanda is now ensuring that in 2018 and 2019, we continue on the level of spending that is reasonable,” Mr Rugwabiza said.
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