UNCTAD Warns Kenyan Government To Slow Down Borrowing

United Nations (UN) agency United Nations Conference on Trade and Development (UNCTAD) has warned the Kenyan government to slow down on domestic borrowing.

UNCTAD Secretary-General Dr. Mukhisa Kituyi said yesterday, September 12^th   at the Standard Chartered Bank’s Africa Summit 2019 in Nairobi. that as the government continues to borrow, it is crowding out the private sector, particularly the Small and Medium Entreprises (SMEs).

“Kenya should consider slowing down their domestic debt so as to free up credit for SMEs,” said Dr. Kituyi.

“When the Government has to go to the domestic markets to compete with investors in borrowing money because of unsustainable expenditure, it crowds out credit from the investment but also raises the cost of retail loans for citizens,” he said.

He explained that while it is okay for banks to loan the government, it is also becoming a disadvantage to citizens and for that reason, reducing debt and trying to live within our means is important for protecting the citizens from struggling with a lot of debts in future.

Currently, commercial banks avoid giving loans to investors in the private sector as they (private investors) are considered ‘risky borrowers’, as the banks prefer to loan government entities because it is less risky.

According to National Treasury CS Mr. Yattani, it is the implementation of the interest capping law of 2016 that is denying SMEs a chance to acquire commercial bank loans, as he recently told a parliamentary committee.

Members of the National Assembly disagreed with the Treasury CS saying that he is responsible for the current SMEs situation for failing to regulate state department expenditure.

“We have been told by the banking industry that we are not getting credit in the private sector because of the interest rate caps. This is not entirely true. Treasury should take the blame for this big public debt we have,” said National Assembly’s Budget and Appropriations Committee Chairman Kimani Ichungwa.

“The government should stop borrowing from local banks because that makes the cost of credit high to the SMEs. KRA should be involved actively in collecting taxes so that the taxes are used for the country’s budget,” said Samuel Atandi MP for Alego Usonga during a recent parliamentary committee meeting with CS Yattani, his deputy and officers from KRA.