Rotich taken to task over high borrowing rates, Eurobond

Treasury Cabinet Secretary Henry Rotich

MPs yesterday cornered Treasury Cabinet Secretary Henry Rotich on the high interest rates, demanding to know how the Sh275 billion raised through the Eurobond helped the market.

Legislators drawn from the Budget and Appropriations Committee sought answers; one after the other, why lending rates had soared even after the promise made by the State that turning to external markets to borrow would ease costs for the ordinary borrower.

"When someone has a loan, they are not interested in the level of Japan's borrowing; all these things that you are saying do not mean anything to our people. That is what we are asking here," queried committee chairman Mutava Musyimi.

Lending rates on bank loans have soared to between 25 and 30 per cent, raising monthly repayments for thousands of borrowers.

"What we want to know is when interest rates will come down and what are we doing to cut wastage (in public spending)," Musyimi went on.

Samburu West MP Lati Jonathan Lelit said the Treasury had failed in achieving the desired results that had prompted the Government to borrow externally through the Eurobond in the first place.

"Everything we wanted to achieve has gone in the opposite direction," Mr Lelit said, referring to the desired results of stability in interest rates at home.

Rotich had told the committee that the recent spike in the cost of loans was partly a result of heavy Government borrowing but the current debt levels were far from alarming. The Treasury boss said the  country's debt was only 53 per cent of the size of the economy, and was way smaller compared to loans taken by Japan, that were more than three-fold its Gross Domestic Product.

"When it reaches 74 per cent, then we are on a red light," Rotich said, adding that there were studies to back his claim, while suggesting that there was plenty of headroom for additional borrowing.

"We do not have an appetite to just borrow." While he was responding to the MPs questions, three commercial banks including Standard Chartered and Citibank had just wired nearly Sh76 billion ($750 million) to the State's accounts in fresh borrowing to help the cut reliance on the domestic markets.

Just the day before, the Government had sought to borrow Sh8 billion through the sale of six-month and one-year securities, but accepted more than Sh12.6 billion of the Sh60 billion worth of investor offers.

Rotich defended the need for borrowing as it was only the way to plug revenue shortfalls and fund the country's expansionary budget. Kenya Revenue Authority had missed its first quarter collections by Sh128 billion, with its boss John Njiraini heaping the blame on underperformance in income taxes including personal and corporation taxes.

Several firms had laid off their staff leading to lower personal income taxes while lower collections from corporations could be a function of dipping profitability, Njiraini said.

The manufacturers' lobby has been approached by the revenue agency to provide member projections for the second half of the current year. Treasury was however concerned by the declining revenues and has commissioned an international consultancy firm to review the operations of KRA and point out the possible leakages.

Njiraini disclosed that some of its employees have been implicated in malpractices that could compromise tax collection. Twenty employees, he said, have been fired while about 100 are facing various sanctions.