Kenya now plans to cut domestic borrowing for 2024/25 by 5.9 percent to Sh388.37 billion, pushing it to the lowest point in five years as it looks to push interest rates downwards and stimulate private sector activity.
The government last tapped a domestic loan of less than Sh400 billion in the 2019/2020 financial year when it borrowed Sh398.5 billion.
According to National Treasury Cabinet Secretary, John Mbadi, the State is banking on a fresh US$1.5 billion (Sh193.9 billion) commercial loan from the United Arab Emirates to help ease the pressure for borrowing from the local market.
“The UAE loan is US$1.5 billion which translates to about Sh195.0 billion and it is a commercial loan. In our budget for 2024/2025, we have a provision for Sh168.0 billion in commercial borrowing and so we thought that if we take the UAE money which will be more than what is in the budget by Sh24.7 billion we will reduce domestic borrowing by that amount,” Mbadi said.
This comes just a week after the Central Bank of Kenya (CBK) cut the benchmark rate for the second consecutive meeting, adjusting it from 12.75 percent to 12.0 percent in the October 8th meeting and signals coordination between the monetary and fiscal policy in an effort to stimulate the economy.
According to data from CBK, growth of credit to the private sector has been muted, having stood at a 1.3 percent in August 2024 compared to 3.7 percent in July.
The high interest rates have also seen a rise in the challenge of bad debt with CBK data showing the non-performing loans ratio closed August at 16.7 percent, up from 16.3 percent in June.
The National Treasury said it is in the final stages of closing the UAE financing deal, which will then pave the way for easing pressure on the domestic market.
“There are issues to be discussed including with the International Monetary Fund which had expressed some reservations about the UAE loan being external financing that is dollar-denominated and therefore could expose us to additional risks. The UAE loan at 8.25 percent is cheaper than the Eurobond we borrowed in February,” Mr Mbadi said.
This adjustment in the 2024/25 borrowing plans now means that foreign borrowing as a proportion of total borrowing is expected to rise from the 46.3 percent through Supplementary Appropriations I to 49.5 percent.
