The government has accepted Sh47 billion from the November tap sale that sought to raise Sh25 billion underlining its high appetite for cash at sky high interest rates.

The coupon rate was 17.9 per cent which is a record high at a time when Kenya is paying over a trillion annually in debt service.

The tap sale was a reopened infrastructure bond issued earlier in November.

A tap sale involves reopening a previously issued infrastructure bond, allowing the government to issue additional bonds of the same series to meet its funding objectives.

Borrowing spree

“The central bank is pleased to offer eligible investors an opportunity to participate in a tap sale of the above infrastructure bond,” the central bank announced.

With tight market conditions due to high interest rates locally and abroad the government has little choice but to borrow at high interest rates.

The use of the average rates of accepted bids provides a market-driven approach to determine the pricing, reflecting current economic conditions and investor sentiment.
Kenya’s reliance on tap sales and infrastructure bonds highlights the government’s efforts to lengthen the maturity of its bonds. 

Government’s earlier plan to list 11 State corporations to raise the necessary funding has not happened partly due to the bearish market conditions.

This tap sale comes against the backdrop of Kenya’s consistent use of expensive short-term borrowing to cover budget deficits. 

Infrastructure bond

The government has been paying nearly 18 per cent interest rates in its infrastructure bond auctions this year. In Kenya’s 2023/24 budget, the biggest chunk of the development expenditure does to infrastructure 63.0 per cent.

This after Treasury allocated Sh 244.9 billion for the construction, maintenance, and rehabilitation of roads.

The successful execution of the tap sale would not only contribute to financing the budget but also reinforce investor confidence in Kenya’s financial stability and commitment to responsible fiscal management.