Government Proposes Drastic Cut in Borrowing, What it Means for You

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In a bid to alleviate the strain on Kenya’s borrowing landscape, the government has announced plans to significantly reduce its borrowing, both domestically and internationally. 

This move is anticipated to facilitate easier access to loans for Kenyans, potentially reversing the recent decline in loans extended to private households by commercial banks, Saccos, and microfinance banks.

The proposed reduction in the government’s borrowing appetite within the local market is expected to see a decrease of over Ksh200 billion, slashing down from the previous highs of Ksh474 billion in Supplementary Budget One to approximately Ksh270 billion in the upcoming fiscal year.

Economist Churchill Ogutu welcomed the government’s decision, citing the positive implications it holds for Kenyans and the private sector seeking loans.

The National Treasury offices at Harambee Avenue, Nairobi


He noted that the excessive borrowing by the government in the local market had deterred investors from Treasury Bills, resulting in soaring prices, while Treasury Bonds remained undervalued, causing an inverted yield curve.

“Treasuries are a secure, short-term investment, but the imbalance in their pricing due to government borrowing has deterred investors,” Ogutu explained in an interview with

“Reducing government borrowing, especially locally, will likely lead to a stabilisation in bond prices and encourage lending to the private sector,” he added.

Echoing Ogutu’s sentiments, global financial experts at Goldman Sachs foresee a positive impact from the reduction in government borrowing. In their review of Kenya’s Budget Policy for FY 2024/2025, Goldman Sachs stated that a decrease in the supply of local bonds could lead to a normalisation of the yield curve, bolstering their optimistic view on Kenyan fixed income assets.

Last year, Kenya experienced a rare downturn in outstanding banking sector loans to households, dropping by Ksh13.7 billion in December. This decline was attributed to the high interest rates resulting from policy rate hikes by the Central Bank of Kenya (CBK).

The series of rate hikes saw commercial bank lending rates surge from 12.22 per cent in May 2022 to at least 14.63 per cent by the end of the year. The subsequent increase in borrowing costs dampened demand for loans, contributing to the decline in loans extended to private households.

The recent decision by the CBK’s monetary policy committee to raise its benchmark rate further exacerbated concerns over lending, prompting calls for a reevaluation of borrowing policies.

A research paper by the Kenya Bankers Association highlighted the adverse effects of excessive government borrowing on private investments, warning that it could hinder economic growth.

In response to the economic challenges, the Treasury has revised down the 2024/25 budget by Ksh267.5 billion to reflect underperforming revenues amidst a mounting public debt.

Total expenditure and net lending for the upcoming fiscal year have been adjusted to Ksh3.92 trillion, down from the previous projection of Ksh4.188 trillion.

During a press briefing, Parliamentary Budget Committee Chairperson Ndidi Nyoro commended the government’s efforts to reduce borrowing, pointing to the importance of relying more on internal resources to sustainably grow the economy.

Nyoro stated, “What we are trying to do is to borrow less and rely more on our own internal resources. Because we have seen this is the only way to sustainably grow our economy. By looking inwards and also putting in resources where the people are.”

“While welcome, the more ambitious fiscal consolidation plans will likely lack full credibility with market participants until more detail on the fiscal measures shedding light on their feasibility is provided,” cautioned Goldman Sachs in their review.

The group stressed the need for detailed fiscal measures to ensure the credibility of the government’s fiscal consolidation plans.

Kiharu Mp Ndindi Nyoro speaking during a thanksgiving service in Murang’a County on Sunday, July 2, 2023.


Ndindi Nyoro

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