Kamau Thugge: Gov't Slashes Domestic Borrowing By KSh 270b, Retains Lending Rate At 10.5 Percent

• 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
• Central Bank of Kenya (CBK) governor Kamau Thugge 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

Kenya will raise an extra KSh 270 billion from external borrowing to reduce pressure on domestic debt to fund the KSh 3.6 trillion budget for 2023/2024.

This followed the National Treasury's move to cut domestic borrowing from KSh 586.5 billion to KSh 316 billion.

Kenya's external borrowing

Central Bank of Kenya (CBK) governor Kamau Thugge said Treasury secured concessional and non-concessional funding from external lenders like the International Monetary Fund (IMF).

"The sources of financing have been identified, and this is why the National Treasury has indicated to us that their borrowing requirements have now been reduced from KSh 586.5 billion to KSh 316 billion.

The IMF would be a part of the contribution to that external financing," said Thugge during the Monetary Policy Committee (MPC) briefing on Thursday, August 10.

The move is aimed at increasing funding to the private sector after the government pulled out of the race for lending from the local banks.

Move to stabilise depreciating shilling

Thugge noted the reduced domestic borrowing will ease pressure on Kenya Shilling by increasing forex reserves.

"We will have enough international reserves to be able to deal with the Eurobond if the market does not behave by next June (2024)," he said.

CBK pointed out that the revised bowing requirements should exert downward pressure on domestic interest rates.

Thugge retains CBR rates as inflation eases

The regulator retained the base lending rate at 10.5%, citing a drop in inflation to 7.3% in July 2023.

"Overall inflation declined to 7.3% in July from 7.9% in June, driven by lower food and non-food non-fuel prices," said CBK.

CBK said the inflation rate returned to its target range of 5%, plus or minus 2.5%.