Thugge said what the government is cuurently doing is to reduce domestic borrowing.

Kamau Thugge Says External Borrowing Will Reduce Interest Rates As Shilling Sinks Deeper

Thugge said what the government is cuurently doing is to reduce domestic borrowing.

  • Central Bank of Kenya (CBK) governor Kamau Thugge reiterated the government's plans to reduce domestic borrowing
  • Thugge maintained that this will be managed by increasing external loans with reduced interest rates
  • He said the move would have a significant drop in base lending rates, which would, in turn, ease pressure on the shilling

PAY ATTENTION: TUKO is in WhatsApp Channels now! Subscribe and read news in favourite messenger.

TUKO.co.ke journalist Wycliffe Musalia brings over five years of experience in financial, business, and technology reporting, offering deep insights into Kenyan and global economic trends.

Central Bank of Kenya (CBK) governor Kamau Thugge has highlighted possible ways to reduce the rising interest rates.

Thugge noted that if President William Ruto's administration cuts demands for domestic borrowing, there will be a significant reduction in interest rates.

What is Ruto's government doing?

"Interest rates have increased substantially, and part of the solution is to reduce the fiscal deficit and domestic borrowing, which will help a lot. We are also focusing on getting more external borrowing with reduced interest...

PAY ATTENTION: Don't miss trending Kenyan news. Follow TUKO.co.ke on Twitter!

"...we are in agreement with the IMF and the World Bank, and these are cheap monies with affordable repayment period," Thugge told the National Assembly Committee on Finance and Budget on Monday, December 4.

This followed the continued depreciation of the Kenya shilling against the US dollar.

Will external borrowing save Kenya shilling?

CBK data showed that the shilling traded at KSh 153.15 per US dollar as of November 30, 2023.

In an exclusive interview with TUKO.co.ke, market analyst at FXPesa Kenya Rufas Kamau explained that low-interest external borrowing is only beneficial if the local currency is stable.

"A month ago, retail investors were reported to have invested KSh 174 billion in government bonds. If the government is switching to external borrowing, it is likely that it has dried up the local source.
"At the rate the Kenya shilling is weakening, further external borrowing will lead to a bigger crisis where our debt grows bigger for every shilling the Kenya shilling loses over the dollar," said Kamau.

Kamau noted that the initiative may help the shilling recover, but not on sustainable terms.

"The initiative may help the shilling recover some losses, without higher production and increased exports, the shilling recovery cannot be sustained," he said.

Ruto's plans to reduce borrowing

Statista reported that as of April 2023, Kenya's external debt accumulated to roughly KSh 5.1 trillion, approximately USD35.08 billion, or 52.9% of the country's total debt.

In August 2023, The government announced plans to reduce heavy borrowing and reduce the debt burden from the exchequer.

National Treasury revised the domestic debt from KSh 586.5 billion to KSh 316 billion as it seeks to reduce pressure on the local market.

The CBK governor said the KSh 270 billion difference from the local borrowing will be secured from external lenders.

Thugge noted the Monetary Policy Committee retained the base lending rate at 10.5% as inflation continued to ease.

PAY ATTENTION: Help us change more lives, join TUKO.co.ke’s Patreon programme.

Romantic Woman Treats Hubby To Brand New Lexus On Their Anniversary: "Is This For Real?"
William Ruto Insists His Govt Will Continue Taxing Kenyans To Get Country Out Of Debt Hole
Google To Pay $700 Mn To US Consumers, States In Antitrust Settlement

Thugge said what the government is cuurently doing is to reduce domestic borrowing.
Thugge said what the government is cuurently doing is to reduce domestic borrowing.
Kamau Thugge Says External Borrowing Will Reduce Interest Rates as
Kamau Thugge Says External Borrowing Will Reduce Interest Rates as
Inside Kamau Thugge’s big policy gamble to stop shilling slide
Inside Kamau Thugge’s big policy gamble to stop shilling slide