Concern as interest rates go up 17pc
The cost of borrowing has steadily increased as Kenya government’s appetite for debt soars, with the latest auction now showing interest rate is approaching 17 per cent.
This surge raises concerns among investors about the sustainability of government debt and the potential impact of the situation on the economy.
When the government borrows at higher rates, it puts upward pressure on interest rates in general. This could affect businesses that rely on loans for expansion and investment, as well as consumers seeking credit for mortgages, car loans, and other forms of borrowing. Higher interest rates can dampen economic activity, leading to slower growth and reduced consumer spending.
Promise of lower rates
This development is in sharp contrast to President William Ruto’s earlier promise that the country will not borrow at more than 10 per cent. “If we find that in the market we cannot find money at 10 per cent, we will go back and re-look at other sources,” he told a meeting of pension industry executives streamed online by his office.
“It is not possible for us to borrow at beyond 10 per cent... the last borrowing we did was at 14 per cent. That is unacceptable,” he had said.
Bond yields entered the 15 per cent territory in the last four weeks, signalling a significant shift in investor sentiment, as experts fingered the government for increased borrowing costs which were being attributed to factors such as inflationary pressures, economic uncertainty, and rising debt levels. The position was further exacerbated when, just one week ago, all Treasury Bills (T-Bills) hit the 12 per cent mark.
“With the amount of debt lined up in the next 2-3yrs and government unable to tame recurrent expenditures. Foreseeing coupons reaching highs of 20 per cent,” said Michael Kogei, a finance and pension expert who is also a trader.
One of the immediate implications of higher borrowing costs is the potential for increased interest rates across the economy. Further, the rising cost of government debt poses challenges for fiscal management. As interest payments on debt increase, a larger portion of the government’s budget goes toward servicing that debt.
Experts say this reduces the availability of funds for essential public services and also limits the government’s ability to stimulate the economy through fiscal measures during times of recession or economic downturn.
