Post date: Tue, Apr 23, 2019 | | Category: Debt | |
Introduction
Public debt is split into two categories namely domestic public debt and external public debt. Domestic public debt comprises financial tools such as treasury bonds and treasury bills which are purchased by various participants in the economy. The measure of total domestic public debt to GDP is important as it provides an indicator of potential crowding out of credit by the government from other consumers of credit in the economy.
Trend in the share of Kenya’s Total Domestic Public Debt Stock to GDP (1999-2018)
Source: Central Bank of Kenya, World Bank and National treasury
The chart above illustrates the proportion of domestic public debt to GDP over a 19 year period beginning 1999 to 2018. Domestic public debt as a share of GDP has been gradually rising and tends to lie between 20% and 30%. The period between 2005 and 2008 witnessed a slight decline in the proportion of domestic public debt to GDP while the period between2015 and 2017 witnessed a slight rise in the proportion of domestic public debt to GDP. Comparing these figures to the proportion of external public debt to GDP, the period between 2000 and 2006 saw an increase in the proportion of domestic public debt to GDP and a decrease in the proportion of external public debt to GDP. This could be attributed by a variety of factors such as favorable domestic rates and/or the government’s intention to limit its exposure to external factors.
In the advent of increased Non-Communicable Diseases such as cancer that require long time treatment, reduction of the Out-of-pocket payments is key in sustaining affordability and access to health care services. These can be achieved through increased insurance both by the government and the private sector.
Treasury bonds are a secure, medium- to long-term investment tools that typically offer periodic interest payments semiannually throughout the bond’s life. The Central Bank auctions Treasury bonds on a monthly basis, but offers a variety of bonds throughout the year, so prospective investors should regularly check for upcoming auctions. Outstanding Treasury Bonds increased by 11.2 per cent to Ksh 1,152,041 million in June 2016 from Ksh 1,035,662 million in June 2015.
In June 2016 compared to June 2015, the stock of Treasury bills increased by 84.4 per cent to Ksh 588,088 million from Ksh 318,929 million while the proportion held by commercial banks increased by 67.4 per cent to Ksh 361,859 million from Ksh 217,742 million. In the same period, holdings by pension fund institutions increased to 20.1 per cent from 12.8 per cent while proportion held by insurance companies decreased to 3.1 per cent from 6.5 per cent.
The medium term debt strategy for the financial year 2016/17 emphasized on the need to develop the domestic market by increasing the issuance of Treasury bonds over the medium term. The strategy targeted a mix of 60 percent and 40 per cent for external and domestic financing, respectively.
Trends in Kenya’s Total Domestic Public Debt Stock from 1999 – 2018 (In nominal terms) Source: Central Bank of Kenya The number of the Week: 2.1, this is the factor by which domestic debt has grown in the last five years. Domestic debt has nearly doubled in the last five years (2013-2018) Between 1999 and […]