The incoming administration is walking into a financial dilemma as investors fight rising interest rates that bar them from financing billions of shillings to the government.
The country is struggling with inflation that was at a five-year high of 8.3 per cent in July on the back of costly food and fuel.
The prices have deepened economic problems triggered by the coronavirus pandemic, including stagnant wages and growing youth unemployment.
As a result of investor demands for higher rates, which forced the Central Bank of Kenya (CBK) to leave offers on the table, the August Treasury bond sale fell Sh11.5 billion short of the target.
“The current high global and local inflation are pushing investors to seek better real returns by placing aggressive bids as compensation for the rising inflation,” said AIB AXYS Africa analyst Solomon Kariuki in a note on the bond.
In the bond sale, which had a target price of Sh50 billion, bidders submitted a total of Sh49.1 billion, of which the CBK accepted Sh38.5 billion.
Three-year security, a 10-year offer, and a final facility of 20 years made up the three-tranche bond.
Investors expected the three-year paper to earn an average of 12.45 per cent, but the CBK was only prepared to offer 11.8 per cent.
They demanded 13.9 per cent against a predetermined return of 12.3 per cent on the 10-year, and 14.2 per cent against a coupon of 13.4 per cent on the 20-year.
If President-elect William Ruto is sworn in, he would face a pandemic-ravaged economy, rising food and gasoline prices caused by the Ukraine conflict, the worst drought in four decades, and soaring public debt.