UN agency boss says excessive internal borrowing crowding private sector, especially SMEs.
The Government has been urged to slow down on domestic borrowing so as to free up credit to the private sector.
United Nations Conference on Trade and Development (UNCTAD) Secretary-General Mukhisa Kituyi said yesterday the Government’s continued excessive borrowing in the domestic market is crowding out the private sector, particularly Small and Medium Enterprises (SMEs).
"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.
"It makes sense to the banks to lend to the Government, but it becomes part of the operating problem. Reducing our temptation to live beyond our means is critical for cushioning citizens from future debt struggles.”
Kituyi spoke at the Standard Chartered Bank’s Africa Summit 2019 in Nairobi.
Banks have in the recent years cut lending to the private sector firms, especially SMEs that they classify as risky borrowers following the implementation of the interest rate capping law in 2016. National Assembly’s Budget and Appropriations Committee Chairman Kimani Ichungwa speaking separately said high expenditure by State entities is to blame for the spiralling public debt. He dismissed banks’ assertions that the rate cap had made lending to the private sector a risky venture.
"We have been told by the banking industry that we are not getting credit in the private sector because of the interest rate caps. Partially yes, but to a greater extent, it is not the capping of interest rates in my opinion. The CS National Treasury bears the greatest responsibility in terms of getting credit to the private sector in the form of government borrowing,” he said in Nairobi at an event where the National Treasury presented its plan for the next budget.
“The Government borrows because ministries and state departments do not regulate their expenditure.”
At the Africa Finance Forum, Standard Chartered Chief Economist for Africa Razia Khan noted that weak credit growth to the private sector was a key challenge for Kenya despite impressive growth rates in the recent past.