Kenya faces expensive loans from domestic market as interest rates rise sharply

The Kenyan government is facing expensive borrowing from the domestic market as yields on Treasury bonds hit a historic high of about 17 percent.

The Central Bank of Kenya (CBK) on Wednesday put up for sale 226 million U.S. dollars worth of Treasury bonds, with higher yields of 16.8 percent, highlighting the government’s dilemma as it seeks to entice investors to lend it amid a cash crunch.

The apex bank said in a notice that the three- and five-year bonds would be sold on Jan. 10, 2024, and the secondary trading at the Nairobi Securities Exchange will start on Jan. 15, 2024.

The yields on long-term securities have been rising amid increased borrowing from the government as well as a rise in the Central Bank benchmark rate.
The CBK, in early December, increased the lending rate to an 11-year high of 12.5 percent in a bid to rein in rising inflation.

Kenya’s domestic debt currently stands at about 29 billion dollars of the total 61 billion U.S. dollars as the government ramps up borrowing to finance its activities.

Investors had shunned long-term papers in preference of short-term ones amid elevated risks arising from financial challenges facing the government.

National Treasury and Economic Planning Cabinet Secretary Njuguna Ndung’u said in a recent statement that Kenya would borrow more concessional loans from multilateral lenders to avoid higher interest rates in both domestic and global bond markets.

Kenya’s public debt stands at 69 percent of the gross domestic product, according to the National Treasury.