Interest rates on government bonds and Treasury bills have been going up in recent weeks, a reflection of the adjustment of the market to high inflation and a depreciating shilling.
These numbers are, however, not solely relevant to the investors lending to the government.
There is a real impact on the economy arising out of these rising rates, particularly the interest that borrowers will be charged for bank loans.
One can expect banks to adjust their rates upwards, taking a cue from the government which as a risk-free borrower effectively sets the floor at which loans ought to be charged in the economy.
At the same time, the taxpayer can expect that the drain on the exchequer via debt servicing costs will go up, further constricting the funds available for key projects such as roads, healthcare facilities and irrigation plans.
This is why the Treasury must revisit the fiscal or budget consolidation plan, with the aim of trimming the fat from the expenditure bill.
By cutting wastage, the government borrowing pressure will be brought under control, forcing banks to lend to the private sector at lower rates and in higher volumes.
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Note: The results are not exact but very close to the actual.
