@ wa ithaka...u have a point..cbk however argue that many tbill issues are to basically absorb maturing obligations...but yeah GOK has tonnes of money yet they do zero with it..

When debt becomes an issue you have to get creative and find every way to pay it down or simply pay it latter. The CBK decided to simply revise the figures for domestic interest payments in their recent weekly bulletin from Ksh49.0 billion to Ksh46.8 billion (the difference representing 27% y-o-y growth vs 21% now). The revision is on interest paid on Treasury Bills, so now we can see that the benefits of the lower T-bill.

Read more in the documents (pages 5 & 6) below:

http://www.centralbank.g...tin/2010/May/140510.pdf
http://www.centralbank.g...tin/2010/May/210510.pdf

How far down will T-bill go? Excerpts from BD article.

The falling return on government paper not only makes it easier for the government to borrow cheaply from the private sector, but it’s set to influence the direction of commercial bank lending and trading at the Nairobi Stock Exchange (NSE).

Financial analysts forecast that the rates could fall further as high liquidity, fewer investment options and risk aversion by high net worth investors push investors to place lower bids to allow them get larger allocations on the government paper.

“Chances are that the banks will continue to put money into government paper even if it sinks below the rate of inflation,” said a research analyst at an investment bank who spoke on condition of anonymity.

“In any case, they have too much cash lying idle and they can as well make something, however small it is.”

Read more:

http://www.businessdaily...76/-/9id2le/-/index.html

@Scubidu, we will have a Sh1 trillion budget this year. Recurrent expenditure is going to be Sh321 billion, how do you see the GoK getting this money.

@All did not mean recurrent but development.

In previous posts we’ve looked at the productivity of debt (debt vs GDP). But now more important are domestic interest payments given the budget deficit and reduction in short term rates. The correlation between debt and interest is quite good and it was in 2006 that the CBK debt management division began to address Kenya's domestic debt stock more vigoriously. The 5 year correlation between domestic interest payments and gross domestic debt are below:

2006 – 55%
2007 – 86%
2008 – 99%
2009 – 95%
2010 – 98%

So the growth in interest and debt has been climbing at the same rate. But is this deliberate? We need to investigate what criteria or formula (if any) is being applied to debt repayment. The interest paid on the annual average gross domestic debt is as follows:

2006 – 9%
2007 – 10%
2008 – 10%
2009 – 10%
2010 – 10%

Isn't it interesting that since 2006 interest payments have roughly been around 10% of average annual gross domestic debt. Just a coincidence? We have to remember that KRA revenue collection has grown at ~15% pa, so that has enabled the debt service ratio to remain below 30% (we covered this in an earlier post). But what is the trend in interest payments vs growth in new debt stock especially given the huge budget funding gap? The interest paid per shilling of new debt

2006 – 0.7
2007 – 0.8
2008 – 1.6
2009 – 0.5
2010 – 0.4

For every Ksh 1 in new debt we only paid Ksh 40 cents in interest payments in 2010. This is the lowest ratio since 1997 (my stats only go that far back). So are we paying debt down faster? No many bills/bonds have matured but as a matter of policy government doesn't make principal interest payments on domestic debt before maturity. So what is enabling the interest payments to drop?

The ratio of new debt stock issued (T-bills vs T-bonds)

2006 – 42/58
2007 – 0/100
2008 – 0/100
2009 – 48/52
2010 – 38/62

The ratio reveals that in 2006, 2009 and 2010 T-bills contributed big to new debt stock. The highest increase in interest payments was in 2006 when they rose 41% at a time when average short term rates were 5.83%. A combination of high debt stock and high rates. The average short term rates were 8.59% in 2008 hence the ratio of 1.6 interest/new debt (see above). A combination of high rates during high redemptions.

So have T-bills reached a floor?, I have no idea, but the rates are probably being matched against expected domestic borrowing. Given the lack of excess reserves currently would you borrow on intbank, rev repo or horz repo at 1.6%, 1.7% and 2.5% respectively to get a hold of 91D paper giving you a 1.7% return?. As an act of monetary policy the current drive to implement a low interest rate regime may not be targeting private sector credit growth alone but a key tool in containing the interest payments on our ever growing debt.

And a final quick word on Kenya's debt productivity. The real economy as measured by GDP 2001 constant (in % terms) must grow by 6.45% this year to justify productivity on a 1:1 ratio to the 90B of issued gross debt stock since the beginning of 2010. And imagine we've still got five more months of borrowing left.