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Kenya: Concern as Treasury Borrows More Locally

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Availability of cheap credit to the micro, small and medium-sized enterprises (MSMEs) looks far from becoming a reality as the government continues to exceed its domestic borrowing target, according to a recent document by the Parliamentary Budget Office (PBO).

The details contained in the PBO’s half-year economic and fiscal update as at August, shows that by June 30, the net domestic borrowing by the government amounted to Sh367.4 billion against a target of Sh233.4 billion.

“By the end of June, the government surpassed its domestic borrowing target, possibly taking advantage of the increased liquidity by the commercial banks,” the PBO report notes. The report, which is intended to keep the MPs updated on the latest trends in the economy for necessary interventions, could be distressing particularly to the MSMEs, more so during the Covid-19 pandemic.

Sh9 trillion

Considering the fact that towards the end of last year, parliament amended the Public Finance Management (National Government) Regulations to increase the country’s debt ceiling from 50 per cent of the Gross Domestic Product (GDP) to an absolute numerical figure of Sh9 trillion. The push by the National Treasury for the amendment was to free up the local borrowing space to the MSMEs as the government goes for the relatively cheap concessional loans from the external market.

“Given increased caution in lending by commercial banks and the increased borrowing by the government, the private sector credit will be negatively affected hampering private sector growth,” PBO warns

Economist Tony Watima notes that increased domestic borrowing is the biggest fiscal problem the country continues to grapple with despite assurances from the National Treasury.

He says the recently released Kenya Revenue Authority (KRA) performance shows that the country missed revenue target by more than Sh100 billion.

Budget deficit

This is an indication that the government will continue to borrow from the local market to plug the ever expanding budget deficit.

“The National Treasury always goes for local borrowing because it is the easy way out compared to foreign borrowing. It shows that fiscal consolidation that the government keeps talking about never takes effect. If it happened we should have scaled down government spending to meet revenue expectations,” Mr Watima notes.

He adds that increasing the debt ceiling from 50 per cent of the GDP to a figure of Sh9 trillion made sense.

“The model of moving from percentage figure of the GDP to an absolute figure made sense. Treasury has been playing around with the percentage. Treasury mandarins have been saying that the country’s debt to GDP was around 50 per cent when it was nearing the 60 per cent mark by the time former CS Henry Rotich left Treasury,” Mr Watima says.

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