ECONOMY

Government turns to Sh40 billion bond to plug budget deficit

Samuel GitongaOct 8, 20181 Mins read948

Central Bank of Kenya Governor Dr. Patrick Njoroge during a past event. CBK has frozen its base lending rate.

The government on October 8 moved to plug the Ksh500 billion budget deficit by inviting bids for a Ksh40 billion government bond.

In its prospectus for the 15-year fixed coupon treasury bond, The Central Bank of Kenya (CBK) invited interested eligible persons to bid for the bond which will be issued in 15 years at a rate of 12.70%.

Only applicants with Central Depository and Settlement Scheme (CDS) accounts will be allowed to invest in the bonds which will be listed at the Nairobi Securities Exchange (NSE).

CBK says the bonds will be sold from October 7 to October 16 with the least bid expected to be Ksh50,000.

The first interest payment date will be on April 22, 2019 while the last one will be on October 3, 2033.

CBK warned that defaulters will be suspended from investing in government securities.

“The Central Bank will re-discount the bonds as a last resort at 3% above the prevailing market yield or coupon rate whichever is higher upon written confirmation to do so from the Nairobi Securities Exchange,” said CBK in the prospectus.

The bond also qualifies for statutory liquidity ratio requirements for commercial banks and non-banking financial institutions as required by law.

This comes two weeks after the government effected the 8% VAT on petroleum products with the government seeking to raise Ksh130 billion from the levy amid a shortfall in collection by the Kenya Revenue Authority (KRA).

Both the VAT on petroleum, products and the government bonds are moves geared towards ensuring that the government finances its ambitious Ksh3.1 trillion budget.

Failure to fully finance the budget will lead to development expenditure budget cuts, a move which is unlikely to appeal to the government as President Uhuru Kenyatta is keen on leaving a solid legacy during his last term in office.