The money markets will shut and so will the government- Uproar on government financial borrowing rules.
President William Ruto during his speech at Association of Pension Trustees and Administrators of Kenya stakeholders on Friday, stated that he had commanded the national treasury not to borrow exceeding a 10 per cent interest rate.
The president argued that it is unreasonable for the government to keep accumulating expensive debts that will create a huge problem to the country in the future.
The president added that if any lender does not accept the 10 per cent interest, then they are willing to walk away.
The president said,” It is not possible for us to borrow beyond 10 per cent. The last borrowing we did was at 14 per cent. That is unacceptable and that is the trajectory we are going.”
“I don’t think anyone would approve us to continue borrowing and take a country to debt in a way that is not sustainable. If your country goes the wrong way you have no other country to live in unless some of you have dual citizenship,” he added.
However, economists have come out to state that, the money markets will not survive , if the rules are that rigid.
Wehliye, an economist added that this decision should not be supported by the national treasury because it will cause more harm.
Wehliye said,”The money markets will shut and so will the government. I am not sure these kinds of decisions have the backing of the National Treasury. If they do, then we have a bigger problem! Let’s hope this was just talk and nothing more!”
The economist argued that, the current minimum borrowing rate according to the Central Bank of Kenya makes it impossible for money lenders to accept a 10 per cent interest rate.
He posed,”CBR is 8.5%. That is the policy rate that sets the minimum borrowing rate. Then there is something called the term structure of interest rates. How do you want to borrow 2/3/5 yr money at 0.5% above CBR? How do you borrow at a single digit when inflation is double-digit?”
“Today’s declaration definitely breaches Article 4. It is tantamount to controlling interest rates. With today’s announcement, the Fund will not likely go to the Board. If they don’t, that would be problematic for the country!” He added.