In an endeavor to reduce and stabilize the interest rates on loans provided to the people of Kenya, President William Ruto has decided to minimize his borrowing from local banks by Ksh270 billion this financial year.
According to the Central Bank of Kenya, the Treasury has revised its target for domestic borrowing from Ksh586.5 billion to Ksh316 billion.
This strategic reduction in domestic borrowing will enable banks to extend loans to Kenyans at more affordable rates. The substantial increase in borrowing from the domestic market in recent years has led banks to favor safer options, thereby abandoning private lending.
"We are of the opinion that with this decreased domestic borrowing, there will be a decline in the burden of interest rates," affirmed Kamau Thugge, the Governor of the Central Bank of Kenya.
Thugge further emphasized that this decision was implemented after cutting down the budget deficit of the Ksh3.6 trillion budget presented in parliament in June.
"The operations pertaining to the Government Budget in FY2022/23 have resulted in a lower budget deficit of 5.3 percent of the GDP compared to 6.2 percent in FY2021/22. The ongoing implementation of the FY2023/24 Government Budget continues to promote fiscal consolidation. We expect a narrower budget deficit of 4.3 percent of the GDP in FY2023/24," he elaborated.
The effective implementation of President William Ruto's plan is crucial for the people of Kenya to enjoy the benefits of lower interest rates.
Nevertheless, this new approach will lead the current administration to borrow more funds from external financial institutions, such as the International Monetary Fund (IMF) and foreign governments.
The Central Bank of Kenya explained that increased external borrowing would also contribute positively to the economy and bolster foreign reserves, ensuring that importers have sufficient dollars to conduct their businesses.
The government has already secured a loan worth Ksh142 billion from IMF, and additional funds are anticipated from other banks throughout the year.
As per an official report released by the Treasury in July, President William Ruto's administration plans to borrow Ksh607 billion externally.
By embracing this strategy, the government aims to lower the interest rates on bank loans, provide favorable lending conditions, and implement fiscal consolidation measures. It is crucial for the government to execute these plans meticulously and diligently to ensure the desired outcomes for the citizens of Kenya.
