HELPS BUSINESS

Senate Bill caps local borrowing by state at 30 per cent

Bill limits borrowing to 30 per cent locally so businesses and investors not crowded out of market

In Summary

•The Bill, which is currently in the pre-publication stage, is  being scrutinised by Parliament's legal experts.

•The draft Public Finance Management (Amendment) Bill compels the government to borrow no more than 30 per cent from the local market, with 70 per cent coming from outside.

Nominated MP Isaac Mwaura.
LIMITING LOANS: Nominated MP Isaac Mwaura.
Image: FILE

The government would be forced to rely on international lenders under a proposed Senate Bill capping local borrowing at 30 per cent.

The draft Public Finance Management (Amendment) Bill compels the government to borrow only as much as 30 per cent of its intended amount from the local market, with 70 per cent coming from outside.

Nominated Senator Isaac Mwaura, who has sponsored the Bill, says local businesses and investors have been hit hard financially as they have been denied loans by local financial institutions in favour of the government.

“This Bill basically seeks to cap domestic borrowing by government. The government is borrowing all the money [from the local market] to pay salaries and do all kinds of mundane things,” Mwaura said in his justification for the Bill.

“We are coming up with a formula in law that says when the government needs Sh1 trillion, we can only borrow up to 30 per cent of that money locally,” he said.

The Bill, which is currently in the pre-publication stage, is currently being scrutinised by Parliament legal experts before it is published and introduced in the Senate for first reading,

“Government is now borrowing from all the banks and it is crowding out local investors. So anybody who has an idea - say they want to create a small cottage industry, build flats or any other economic idea that can generate income to the same government - they can no longer get money,”  Mwaura said.

He added the government has been in competition with local investors for loans from banks and other financial institutions, thus stifling growth of businesses.

As such, local industries, including manufacturing, have suffered. The situation, he said, has been exploited by informal lenders, otherwise known as shylocks, leading to exploitation of the borrowers.

“Take the SGR for example. The Chinese have sold over Sh400 billion over the last year and the same moved through SGR but most of those containers are going back empty. It is essentially because we have nothing to sell to them,” he said.

He added, “The government is borrowing money to do infrastructure but those roads are not benefitting the local manufacturer. They are not stimulating growth in terms of actual development other than opening up pathways for foreign goods to come to the market.”

The situation, the legislator noted, has been aggravated by the Covid-19 pandemic that has forced banks to deny individuals and businesses loans in favour of the government.

(Edited by V. Graham)