Borrowing domestically to finance the budget is Kenya's biggest problem in the quest to tame interest rates, Gatundu South MP Moses Kuria has said.
In an interest rate debate last week, Kuria decried "massive dependency" on this type of borrowing, saying the county has not exhausted alternatives.
The MP spoke of the leadership of retired President Mwai Kibaki, saying he did not see the rate lowered.
“Mwai Kibaki, in 2004, did not cut the interest rate yet we were on a single digit. Why?” he posed.
Speaking at the debate also attended by the Kenya Bankers Association, the MP said that Kenya capped interest rates without having exhausted all other alternatives.
"It was my opinion that by that time, we had not exhausted alternatives to using regulation to reduce the cost of credit."
In his budget speech in June,
Treasury Secretary Henry Rotich promised to repeal the interest rate cap that has been in place since 2016.
MPs looked unhappy as Rotich spoke and Cofek has promised to campaign against the decision.
The cap limits banks to lending at only four per cent above the Central Bank rate. The policy rate was revised from
10 to 9.5 per cent,
meaning Kenyans will pay 13.5 per cent on loans instead of 14 per cent.
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This year’s Sh3.07 trillion budget has gone up by about 10.83 per cent compared to last year’s which totalled Sh2.77 trillion.
On debt repayment, Treasury has allocated Sh870 billion, representing a 25.79 per cent compound growth from three years ago.
This will cause the debt service to revenue ratio to 51.56 per cent yet the
sustainable debt service ratio should be 30 per cent.
According to the Treasury, Kenya’s debt obligation is expected to hit a 'historic' Sh5 trillion by June 2019.
Apart from domestic borrowing, the deficit will also be financed by external institutions up to a tune Sh282.5 billion and other net domestic receipts of Sh4.2 billion.
Another way to finance the budget as signalled by Treasury is a complete review of the Income Tax Act with a view to enhancing revenue collection.