Parliament asks Treasury to cut domestic borrowing

The National Treasury building, Nairobi. [Elvis Ogina, Standard]

Parliament has asked the National Treasury to reduce its domestic borrowing target in the 2021-22 financial year by Sh193 billion, setting the stage for the government to head to the international debt markets.

A report by the National Assembly Budget and Appropriations Committee further asks the government to reduce the stock of Treasury bills by Sh200 billion and retire its overdraft facility at the end of each financial year. 

“Consistent with the debt mix that ensures there is low cost and minimises risk, net foreign financing be limited to Sh530 billion while net domestic financing be set at Sh399 billion,” the committee said.

The recommendation is a reversal of the proposal by Cabinet Secretary Ukur Yatani in his Budget Policy Statement earlier this year that Treasury would borrow Sh592 billion locally and Sh345 from the external market.

This is expected to boost liquidity in the economy as commercial banks will increase lending to the private sector as opposed to heavy lending to government in the recent past.

Data from the Capital Markets Authority showed that investors last year put a record Sh690 billion in Treasury bonds on the back of uncertainty around the Covid-19 pandemic.

This has been compounded by reports from the private sector, particularly small enterprises, that banks have not provided affordable credit despite a raft of policy reliefs by the Central Bank of Kenya (CBK).

“The committee observes that measures adopted by the CBK during the pandemic such as the reduction in the cash reserve requirement from 5.25 per cent to 4.25 per cent and the CBK rate from 8.25 per cent to seven per cent did not meet their objective of lowering the cost of borrowing for the private sector,” said the committee.