The government is planning to raise Sh60 billion from the sale of a 14-year bond to fund infrastructure projects in the current fiscal year amid a budget deficit.

The government which is stuck in a Sh845 billion budget hole, is seeking to raise in excess of Sh578.6 billion from the domestic market in the current fiscal years, to oil the economy.

“Central Bank of Kenya, acting in its capacity as fiscal agent for the Republic of Kenya, invites bids for the above bond whose terms and conditions are as follows… The Bond will be tax free as is the case for infrastructure Bonds as provided for under the income Tax Act,” CBK said in the notice. This new September bond sale comes at a time when the government has been struggling to raise capital domestically due to demand for higher interest rates by investors. This saw the Central Bank of Kenya (CBK) made to accept expensive bids which surpassed the average 14 per cent mark.

The CBK – the government’s fiscal agent – said the interest rate for the bond will be determined by the market. Investors will not pay taxes on interest received, and could attract higher subscription due to its lucrativeness.

Interest on ordinary bonds is usually levied between 10 and 15 per cent withholding tax rate, significantly eating investors’ yield.

Development projects

This bond could come in handy to complete ongoing infrastructure development projects and even help jumpstart stalled projects.

During his interview at Parliament, Transport and Public Works Cabinet Secretary nominee Kipchumba Murkomen said that construction of road projects stalled over unpaid Sh140 billion pending bills inherited from the previous jubilee regime. He hinted at pushing for securitisation of loans and the use of road levy as a new mechanism to address the infrastructure funding crisis in the ministry. But analysts warn that pending bills risk increasing the country’s debt further towards the debt limit, at least in the short to medium term, before it starts to taper off in 2024.

This even as the current administration inherited over Sh500 billion Aworth of pending bills owed by government agencies, meaning more bonds could be floated in the near term.

In total, pending across the country including county government and pension liabilities are very high. “Pending bills are in excess of Sh1 trillion, the Sh500 billion is for national govt. Add devolved units. Then add pension liabilities,” commented George Bodo, director at Callstreet Analytics in a past interview. Kenya had Sh8.4 trillion worth of public debt by June this year meaning a new bond will push public debt over Sh9 trillion and closer to Sh10 trillion.

“The rise in interest rates is causing difficulties in refinancing our foreign commercial debt,” says President William Ruto in his manifesto.