Treasury over shoots its borrowing targets but says that borrowing was necessary to finance unplanned events; e.g., maize importation and power generation. Read the article below:

http://www.businessdaily.../-/15qtw7m/-/index.html

Interesting parts of the BD article:

Heavy borrowing by the government is usually associated with high interest rates that arises from the crowding out of the private sector from the debt market but analysts reckoned a combination of monetary policy actions and structuring of the debt has smoothened it out.

The failure of this heavy domestic borrowing to negatively impact on interest rates has been the subject of intense debate among analysts with some attributing the relative stability to the fact that a significant fraction of the debt is long term and has been put into investment as opposed to consumption.

“From July to March the cumulative expenditure on interest and other charges on domestic debt amounted to Sh39.5 billion compared with Sh31.9 billion in a similar period in the last fiscal year”, said CBK in its latest Weekly Bulletin.
At this rate, the interest payments is higher than development vote for the Ministries of Roads, Education, and Energy whose votes were Sh28 billion, Sh16 billion and Sh20 billion respectively.

From those three excerpts can we conclude that experts believe (1) private sector hasn't been crowded out (2) govt spending is not 100% recurrent (3) the cost of debt financing may not be sustainable (see post 43 & 59 in the CBK reduces rate thread). Some economists aren't worried by Debt to GDP levels (at ~40%) as they bank on higher revenues, economic growth, higher tax receipts...but what will keep this ratio depressed in the long run...lower inflation...they've done their homework.

this just in....CBR cut by 25 bps...very unexpected really cbk are hell bent on forcing banks to lend..maybe cbk shud advise theyr client-read GoK to stop overborrowing

It seems govt will not stop overborrowing and should come clean on why private sector borrowing hasn't recovered...another record level of borrowing ~16b. What impact does this have on domestic debt? I wud like to see omo activity on the value date. Would the returns on a 15yr paper be attractive to you?-just under 10%. Check out auction results below:

http://www.centralbank.g...bonds/manualresults.aspx

Traditionally GoK spending has been on recurrent expenditure in lieu of development expenditure...and most of the govt recurrent expenditure is used to pay the wage bill of a bloated govt and quasi-govt (read parastatals) bodies so leaving kidogo sana amts for R&D, infrastructure, Health (why we have a curative as opposed to a curative model),etc. On health what I mean is that our systems are geared towards curing diseases instead of preventing them. Plus zamani City Council used to spray stagnant amts of water in drainages, cut grass, etc to ward off disease-casuing mosquitoes. That is preventive. Nowadays, the bulk of poor folks just to go KNH (which is a referral hosi btw!)- that is, they go there for a cure (thus curative model). The bottom-to-top hierarchy should be dispensaries, district hospitals, provincial hospitals and then referral hospitals of which KNH is the main one. Yaani u go to KNH because all the rest were unable to treat your problem.
But guys flock to KNH because of failure of these other smaller health units. Ergo, the overcrowding at KNH is a symptom of too much of our budget spent on recurrent expenditure instead of developing say, our health infrastructure, leading to collapse of some dispensaries and drug stocks outtages at NCC dispensaries, district and provincial hosp.

In fact Mwalimu Mati's Mars Group observed that only 15% of our national income goes the development kitty (where a lot is pilfered on the way anyway, meaning even less reaches the intended beneficiaries)- this in a country where 80% of the folks are poor...
http://blog.marsgroupkenya.org/?p=119

Be that as it may, I was thrilled to bits when they allocated a good chunk of the budget in 2008 to the modernisation of the armed forces. About time! Yes we may moan about we are not at war, that health and education and all that have been neglected but a strong force is a deterrent force in an increasingly dangerous neighbourhood some with expansionist ambitions. Plus the last time our armed forces bought quality materiel (jet fighters/ Vickers tanks,etc) was 32 years ago! In 1978 to be precise. And now, even Tz has 6 of the more sophisticated Mig -29 Fulcrums!

Caveat: So long the money is not invested in junk aircraft or stolen...

much know-your last line made sense

@scubidu uganda's economy is still EXTREMELY SMALL and very DISORGANIZED when compared to kenya so both the debt and capital markets here are very illiquid... i mean we are still using share certificates and (there is a 30% capital gains tax)...

just to show the extent of how small the economy is.. as kenya auctions bonds worth kshs10billion uganda auctions an average amount of ushs10billion(kshs 380 million) all for recurrent expenditure....

the inflation rate is poorly calculated and yet it is still above 10% and lets not even go to the unemployment... the official rate is around 18% but it does not include the around 70% of the population that is in informal business(INCOME TAX EXEMPT)...

the nature of the government(military democracy) also presents large amount of risk since there is no clear sight of democratic change and the constitution is completely meaningless...

if one visits Kampala they would see the disorder i am talking about...

@scubidu - to answer your earlier question: the Mig-29 is a high performance combat aircraft made in Russia. West's equivalent is th F-16 fighter.

In some respects, the debt would not be an issue if it was for example to finance infrastructure to enable the economy to gorw. Most of ours is to finance fighting equipment bought in the world's equivalent of Gikomba market in the evening.
And to finance recurring govt spending that is not really adding value like 42 ministries.

You need but download a monthly economic review to see GDP measured in 3 ways: GDP at Basic Prices, GDP at Market Prices (Current Prices), GDP at Market Prices (Constant 2001 Market Prices). When economists observe GDP growth they refer to GDP (Constant 2001 Market Prices) but when they refer to debt to gdp ratio they refer to GDP (Current Market Prices).

We can track the normal debt to GDP ratio for the last five years using GDP (Current Market Prices):

2004 - 58%
2005 - 53%
2006 - 49%
2007 - 46%
2008 - 46%

These are the numbers we're used to. However, if we use the GDP (Constant 2001 Prices) we see slightly different ratios.

2004 - 66%
2005 - 63%
2006 - 63%
2007 - 63%
2008 - 71%
2009E - 80%

IMF economists will often refer to gdp to debt ratio to evaluate a country's borrowing profile and it would indeed show that when using GDP (Constant 2001 Prices), this ratio suddenly varies in 2008/09 from the previous years (the '09 GDP growth assumption was 2% which was the IMF estimate). Govt debt created (public debt) can be spent unproductively or not spent at all (appears the latter is the case now). So is there a way to gauge the productivity of Kenyan debt (it was alluded to in post 12). We can look at the annual change in public debt vs GDP (Constant 2001) & produce a productivity factor based on the changes. The results from 2001 are below:

2001 - 6.0
2002 - 0.2
2003 - 0.4
2004 - 2.2
2005 - 8.1
2006 - 1.5
2007 - 1.7
2008 - 0.2
2009E - 0.2

This is how the ratio is interpreted. In 2001, for every Ksh100 of public debt created by the govt about Ksh600 of GDP (revenue) was generated (have a look at the article in post 12). We are using GDP (Constant 2001) because we can apply the growth projections to those figures, e.g., 2% for 2009 and 3% for 2010 (according to IMF). So u'll notice that in 2002, 2008, 2009 for every Ksh100 of debt only Ksh20 of GDP revenue was generated proving that debt productivity is low because of low GDP growth (and unspent stimulus funds).

In order for 2010 productivity factor to be 1.0 govt should only raise public debt by Ksh 43 billion in order to match a growth in GDP of 3%. In the first quarter of 2010 we can estimate that public debt is already up Ksh 27 billion meaning that govt shouldn't borrow more than Ksh 16 billion over the next nine months. This means that the deficit financing largely through domestic borrowing should not be higher than ~3% of GDP vs 6.6% for 2009/10. Isn't this the way the govt should rationale...for every Ksh100 they create in debt they should at least match it with Ksh100 in GDP growth.

Optimistic GDP forecasts from fund managers are as high as 4.5% for 2010 and this should allow public debt to swell by about another Ksh 38 billion from current levels (deficit financing ~2.6% of GDP). But 4.5% GDP growth seems a stretch. You'll notice I'm only focusing on domestic debt and not external debts, those foreign loans for energy (for example). <Note: You can run all the above scenarios using data from monthly economic reviews and budget speech estimates>

Crucial in this day and age to check and double check. On closer inspection of the latest review it may appear that the figures for the debt to gdp ratio may have just been a typo and that indeed the ratio is still at 45% (CBK should be more careful b4 releasing monthly statements).

Using the 45% ratio and the public debt figure for Dec 2009 we can infer that GDP (Current Market Prices) was about Ksh 2.4 trillion. This is useful but presents some more puzzles. This gdp growth in 2009 represents a 17% y-o-y vs 15% in 2008; curiously this rate of growth was the highest rate of growth (in both percentage and nominal amounts) since 2001 (2008 ranks 2nd);

However, GDP (Constant 2001 Prices) paints a different picture suggesting that 2007 was the best performing year since 2001. There is an obvious disconnect between reality and GDP (Market Prices) as 2008 and 2009 were supposedly years in which Kenya suffered an economic downturn but the stats above suggest otherwise. Just what does GDP (Current Market Prices) measure?

Tricky thing stats are because using one set of statistics based on GDP (Current Market Prices) suggests debt to gdp ratio has fallen from 59% in 2001 to 45% in 2010 while the same set of stats based on GDP (Constant 2001 Prices) suggest that the debt to gdp ratio has risen from 59% in 2001 to 80% in 2010. Which one is more accurate? and Relevant?

Three months have past since the last estimate of quarterly gdp growth, I'm sure by now the CBK has a fairly good idea of what economic growth in 2009 was. Let's hope they exceed our expectations.