President Uhuru Kenyatta is being unrealistic when he calls on the banks to further lower the cost of borrowing (see page 18). The reason interest rates are high is because government is borrowing from the market to finance large infrastructure projects, among many other things.
Treasury Bond rates should be brought down and government’s appetite for big borrowing needs to be curbed. What’s more, government needs to go back to paying its debts.
After the cap on interest rates that President Kenyatta assented to in August, Parliament needs to address government borrowing. The state is so voracious for credit that Parliament should bring in legislation to stop it from borrowing at the drop of a hat. The rate for a one-year Treasury Bill is 14 per cent, so why lend to a bank client at 14.5 per cent?
The President is right when he says more and more Kenyans want access to affordable credit. Bringing down government borrowing will be one major way of bringing about economic transformation.
