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Domestic investors will fund a larger share of the additional Sh2.13 trillion that President Uhuru Kenyatta’s administration targets in the next four years.

This will give banks more room to deepen lending to the government at the expense of companies and households.

Nearly Sh1.27 trillion will be tapped from domestic investors with foreign markets funding the remainder Sh863 billion of the debt portion. The funds will go into implementing Mr Kenyatta’s Big Four plans, the Treasury projections show.

Increased domestic borrowing, analysts say, may hurt flow of loans to the private sector with September 2016 legal ceilings on loan charges still in place.

Banks controlled 55.5 per cent of the nearly Sh2.50 trillion domestic debt as at September 14, Central Bank of Kenya statistics show.

“Increased borrowing in the domestic market squeezes out the private sector and, more so, with rate caps, it is likely to exacerbate the subdued the private sector credit growth you are already seeing,” said Churchill Ogutu, a senior research analyst at Genghis Capital, on phone. “But borrowing from external market also has some risks because of foreign exchange fluctuations.”

Domestic borrowing through weekly sale of Treasury bills and bonds is projected at Sh299.9 billion in the year ending June 2019 from Sh366.5 billion in the year ended last June.


This will, however, rise to Sh309.6 billion in the year to June 2020, Sh310.90 billion in June 2021 and Sh345.7 billion in June 2022, projections in the draft 2018 Budget Review and Outlook Paper indicate.

The reliance on domestic markets to bridge the gap in budget bucks a trend where the Jubilee administration has since 2014 been contracting more of foreign debt to build much-needed roads, standard gauge railway, electricity plants and bridges.

External debt is forecast to fall to Sh272 billion this financial year ending June 2019 from Sh265.5 billion in the one ended June and Sh498.5 billion the year before. New borrowing from foreign investors is set to further drop to Sh217 billion in the year to June 2020 and Sh147.2 billion the following year, according to the Treasury.

“Fiscal policy over the medium-term aims at supporting rapid and inclusive economic growth, ensuring a sustainable debt position by narrowing the budget deficit and at the same time supporting the devolved system of Government for effective delivery of services,” Treasury PS Kamau Thugge.