Investors have predicted that President William Ruto’s plan to borrow more after withdrawing the Finance Bill will see Kenya’s economy experience tougher times.
An analysis by the Africa Report on Monday revealed that Kenya’s capital costs may increase as a result of the decision to borrow more and the uncertainty that surrounded the figures before a final settlement on July 5.
During a roundtable interview, the President had stated that Kenya would have to borrow Ksh1 trillion to account for the budget deficit after the withdrawal of the Finance Bill, 2024.
However, on July 5, the President later remarked that Kenya’s total debt in the financial year would be Ksh766 billion with Ksh169 billion being required to bridge the gap.
Further, investors have predicted that the government might default on some of its loan obligations as the country finds itself grappling with a tough economic situation.
As it stands, investors have either hiked the interest rates or withheld their capital, in anticipation that the Kenyan government will likely dip into the market to borrow to plug its shortfalls.
Additionally, the investors have predicted that private borrowers may suffer, as local commercial lenders cut the amount advanced to regular clients seeking to capitalise on a government opportunity that might present itself.
According to the analysts, lenders prefer to advance loans to governments rather than private individuals who are more likely to default.
Further, the report pointed to the recent sale of a bond as evidence that the government might revert back to the markets to address its needs.
Last week's tap-sale bond auction seeking Ksh20 billion underperformed, managing to raise Ksh486 million.
“We see this underperformance of the tap-sale as a consequence of the recent developments where the government anticipated to borrow almost Ksh1trn in the 2024/25 budget,” the Africa Report quoted an expert featured in the article.
Additionally, piling up on the uncertainty at play, Kenya is expected to submit a new plan on debt servicing to the International Monetary Fund (IMF) following withdrawal of the controversial Finance Bill, 2024.
