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Kenya raises domestic borrowing for third time

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Kenya’s National Treasury has raised domestic borrowing for the current financial year by Ksh84.63 billion ($84 million). Acting Treasury Secretary Ukur Yatani increased the cash the government is targeting to borrow from domestic investors by 19.5 per cent to nearly Ksh514.03 billion ($514 million) for the year to June in the latest monthly filing on the state’s budget.

The adjustment is largely linked to the additional Ksh55.23 billion ($55 million) expenditure for development that is contained in the revised national budget. It also comes as the Kenya Revenue Authority (KRA) struggles to meet tax targets in a slow economy, forcing the Treasury to reduce the taxman’s target by Ksh100 billion ($100 million) to Ksh1.7 trillion ($17 billion).

This is the third time the domestic debt target is being raised from Ksh422.89 billion ($422 million) in the first month of the fiscal year in July and Ksh429.39 billion ($429 million) in September.

Analysts say the additional domestic borrowing could increase the cost of bank deposits as lenders compete with the government for savings from high-net worth investors, denying bankers room to offer cheap loans to households and businesses.

“The raised domestic debt target will actually send mixed signals to the market that despite the risk-on sentiment to private sector lending in the wake of rate cap repeal environment, the uptick in domestic borrowing will be an arresting factor,” said analysts at Genghis Capital.

The Central Bank of Kenya cut its benchmark lending rate for the first time in more than a year in November, signalling to banks to lower the cost of loans. The bank’s Monetary Policy Committee cut the rate by 50 basis points to 8.50 per cent in its first meeting on November 25 since Kenya lifted a cap on commercial interest rates that it said had stifled credit growth and held back the economy.


Economists say heavy state borrowing from the domestic markets pushed up short-term interest rates and crowded out private sector investment.

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