Kenya’s domestic debt increased to KSh3.49 trillion in the first week of January 2021, a 19% jump from KSh2.94 trillion in the same period in 2020. Investors piled their funds in long term government debt with treasury bonds increasing to KSh2.56 trillion from KSh1.97 trillion a year ago. In contrast, treasury bills dropped to KSh835.76 billion from KSh878.94 billion at the start of 2020.
The government ramped up borrowing to counteract the effects of covid19 on the economy as well as finance development projects. Data from the Central Bank of Kenya shows that total public debt reached KSh7.25 trillion at the end of November 2020.
The average interest rates on 91 day treasury bills, 182 day treasury bills, and 364 day treasury bills decreased to 6.88%, 7.52%, and 8.45%, from 7.2%, 8.14% and 9.83% respectively a year ago. The rates fell as banks, fund managers, and insurance companies increased their demand for short term government debt.
Banking institutions remain the largest holders of government domestic debt with 53% of local government debt held by the lenders. The banks prefer lending to the government rather than businesses and individual borrowers who pose a greater risk of default. Pension funds increased their holding of government bonds and bills from 28.55% in January last year to 30.32% in January this year. Insurance companies and parastatals’ holding decreased to 6.4% and 5.7% from 6.5% and 6.7% respectively.
Banks and Pension Funds Dominate Kenya’s Domestic Debt
