This archive report was first published on 19 October 2019.
On October 19, 2019, President Uhuru Kenyatta's call to repeal interest rate caps was enforced, with financial stakeholders seeing it as the government's last resort to engage in fiscal consolidation.
According to Research Analyst Victor Koech from AIB Capital, the rate cap repeal is the most informed switch to fiscal consolidation by the government, as the state suffocates in a severe fiscal straitjacket defined by falling revenue mobilization against rising public debt.
“President Uhuru Kenyatta is prepared to lose his political capital to salvage the economy. This is the only way to the reduction of the budget deficit and freeing up funds from bi and multilateral institutions who have been hesitant at funding government,” said Koech.
The severe void in financing is visible in the recently presented budget to the National Assembly, which mirrored the tough expenditure financing options.
While Ksh.3.02 trillion net spending has been proposed in the current 2019/20 financial year, projected domestic revenue mobilization accounts for only Ksh.2.1 trillion, leaving a deficit of nearly Ksh.1 trillion to be filled through borrowing.
Acting Treasury Cabinet Secretary Ukur Yatani has moved to revise the public debt ceiling to Ksh.9 trillion, creating room for the replacement of expensive commercial debt with cheaper concessional funding.
