MPs warn Treasury against deep domestic borrowing

Parliament has faulted the National Treasury’s move to ramp up its local borrowing, saying that it will lock out small businesses from cheap loans.

In its review of the 2020/21 budget proposed by Treasury Secretary Ukur Yatani, lawmakers said the move is against the earlier commitment to reduce domestic borrowing in funding budget deficits.

The Budget and Appropriations committee chaired by Kikuyu legislator Kimani Ichung’wa said that this will deny Small and Medium Enterprises (SMEs) access to cheap loans in their efforts to remain afloat amid the coronavirus pandemic.

Mr Yatani said that he intends to borrow Sh473.6 billion from the local market and Sh349.7 billion from the foreign market for development projects.

This means that domestic borrowing will rise by 20.98 per cent from the Sh391.45 billion targeted by Treasury for the current year.

The borrowing is part of Mr Yatani’s bid to bridge an estimated budgeting deficit that stands at 7.3 percent of the country’s GDP as the country takes a hit from the coronavirus pandemic. “This trend is contrary to the previous undertaking by the National Treasury to ensure that there is reduced domestic borrowing as well as targeting cheaper financing from multilateral and bilateral sources…,” the committee said in the review of the 2020/21 budget.

The policy to borrow more from the local banks comes even as SMEs remain one of the hardest hit by the economic disruptions caused by the Covid-19 pandemic.

A survey conducted by the Central Bank in Kenya showed that more that 75 per cent of SMEs would collapse if they did not get funds by end of this month. Mr Yatani said Sh904.7 billion will be used to service debt in the year starting July at a time ordinary revenue is seen falling due to tax cuts and reliefs adopted in April to cushion Kenyans from the pandemic and economic disruptions.