Treasury Cabinet Secretary John Mbadi has voiced strong support for additional interest rate cuts by the central bank to stimulate lending to the private sector and promote job creation.
On his 50th day in office, CS Mbadi highlighted that reducing the benchmark rate would invigorate the economy by enhancing market liquidity.
“The solution to the economy is to find ways to lower the lending rates that banks charge the private sector. We want interest rates to decrease so banks can provide more funds to private businesses, creating more job opportunities and putting money in people’s pockets,” Mbadi stated.
On October 8, 2024, the central bank’s Monetary Policy Committee (MPC) responded to the need for economic stimulation by reducing the Central Bank Rate (CBR) by 75 basis points, lowering it from 12.75% to 12%. This marks the second consecutive cut of the benchmark rate this year, signaling ongoing efforts to boost economic activity.
In reaction to these changing financial conditions, private sector credit from Saccos increased to 11%, up from 9.3%, as borrowers sought alternative lending options to meet their expenses. Conversely, data from the Central Bank of Kenya (CBK) showed that private sector credit from commercial banks fell to 1.3% in August, down from 3.7%. This decline is primarily linked to the appreciation of the Kenyan shilling and the lagged effects of previous monetary policy tightening.
Dr. Thugge noted that, adjusting for exchange rate impacts, private sector credit growth would have reached 4.3% instead of the reported 1.3%. However, he acknowledged that even with these adjustments, a deceleration in credit growth persists, especially considering the effects of the shilling’s appreciation on loans denominated in foreign currencies.
CS Mbadi also announced that the government is actively clearing pending bills to enhance market liquidity and address rising unemployment rates, a priority for the administration. “The single biggest challenge we have now is how do we employ our youth and working-class individuals who come out of colleges. This will happen through the deliberate effort of injecting more liquidity into the market, which we have started by paying off pending bills,” he explained.
Since taking office on August 8, 2024, CS Mbadi has initiated the digitization of the Kenya Revenue Authority (KRA), a move that aligns with Kenya’s medium-term economic agenda focused on fiscal consolidation by broadening the tax base.
“In consultation with the President, we have agreed on several reforms at KRA, including system improvements. Our goal is to establish a system that enhances our ability to collect taxes more efficiently and economically,” he stated.
These reforms aim to significantly enhance tax collection across various sectors, including Value Added Tax (VAT), personal income tax, and rental income tax. Currently, the KRA collects Ksh 17 billion from these taxes, despite a potential yield of Ksh 100 billion, highlighting a considerable gap that the reforms intend to bridge.
To promote transparency in public debt management, CS Mbadi has engaged the Auditor General, who has commenced auditing public debt. The Treasury is fully cooperating by providing the necessary documentation to bolster public confidence in the government’s debt records.
