David Ndii: Why Kenya's domestic debt is more expensive than the external one

Economist David Ndii during UDA Presser at their headquarters in Nairobi. May 20th,2021 [Elvis Ogina,Standard]

Kenya’s domestic debt is more expensive than the external one, says a key member of William Ruto's think-tank economist David Ndii.

Local commercial banks make over Sh500billion annually as interest earned from loans given to the national government, and the figure is expected to rise if the government’s appetite for debt is anything to go by, he says.

Economist David Ndii says as of last year 2021, the Uhuru Kenyatta-led government had borrowed over 3.04 trillion from the domestic market and about Sh3.12 trillion externally according to figures by the Central Bank of Kenya.

Speaking to Spice FM (The Situation Room),  this morning, Ndii said that the module of increased borrowing from domestic commercial banks has led to limited credit being advanced to local businesses hence badly hurting the economy in general.

“Such a move has resulted in millions of those in need to fall for mobile loans and when they default, they are listed at the Credit Reference Bureau, CRB and with nowhere to fall for, they end up at the shylocks who charge 10% interest per day or even more”. He added.

According to the economist, the government needs to have a proper and functional medium-term budget management strategy for it to achieve economic growth aligned with Vision 2030.

“When we liberalised the local financial institutions, we threw the baby away with the bathwater. We killed organisations that used to lend loans to local mwananchi, especially farmers. It is a shame that farmers have now resorted to borrowing from local banks for a short-term problem like planting maize or buying animal feeds for those in the dairy sector”, he said.

Consultant Ndii, who doubles up as a columnist and author, lauded the few remaining institutions like Kenya Tea Development Authority, KTDA that has over the years cushioned more than half a million farmers when it comes to providing farm produce like fertiliser, agri-extension, transportation, processing, and marketing.

He called on other players in the agricultural sector to emulate cooperative societies such as the Dairy Farmers Cooperative Society which has withstood the test of time by sticking with its dairy farmers in the milk sector despite being fought by overzealous cartels who have run down the industry.

Research indicates that domestic borrowing has its disadvantages which include that the government incurs a higher cost of borrowing domestically at 66 per cent as compared to the cost it incurs externally at 34% and it has a higher refinancing risk due to the high number of treasury bills issued as compared to treasury bonds.