State borrowing plan raises red flag over jobs, private sector growth
In a report tabled Wednesday, the Budget and Appropriations Committee, led by Samuel Atandi, cautioned that the move could either push up borrowing costs or edge out businesses from the credit market.
Parliament’s budget team has raised concerns over the government’s plan to borrow Sh591.9 billion from the local market to plug a Sh876.1 billion budget hole in the upcoming financial year, warning it may choke private sector lending and slow job creation.
In a report tabled Wednesday, the Budget and Appropriations Committee, led by Samuel Atandi, cautioned that the move could either push up borrowing costs or edge out businesses from the credit market.
Only Sh284.2 billion of the deficit will be covered through foreign borrowing.
“Despite the declining interest in government securities locally due to easing monetary policy stance, continued reliance on domestic borrowing might either crowd out the private sector or result in high borrowing costs,” the committee stated.
The report stresses the need for the state to maintain fiscal discipline and avoid inflating the deficit during the financial year through supplementary budgets.
The caution comes amid ongoing warnings from the Central Bank of Kenya (CBK), the Institute of Public Finance, and the Institute of Social Accountability, who say the government’s appetite for domestic debt could hurt businesses already struggling with tight credit.
CBK data shows lending to the private sector has been falling. In December 2024, credit contracted by 1.4% from the previous year, partly due to a stronger shilling that reduced the value of foreign currency loans.
The situation worsened in February with a 1.3% contraction, followed by a sluggish 0.2% rise in March.
This credit squeeze has translated into fewer jobs.
The 2025 Economic Survey reports a drop in new employment to 703,700 in 2024 from 720,900 the year before.
The private sector remains the largest employer, accounting for 90 per cent of new jobs.
Business confidence is also waning.
A new report by the Kenya National Chamber of Commerce and Industry shows 60% of businesses do not plan to hire more workers this year, a major shift from past years.
The 2025 Business Barometer, which surveyed 1,981 enterprises from all sectors and sizes, paints a gloomy picture of the economy, with firms citing high taxes, high cost of living, and policy uncertainty as key challenges.
"The negative outlook on employment growth is linked to a decline in sales and an increase in operational cost," the report read.
With private sector credit growth weakening and hiring plans shelved, lawmakers now worry that the government’s borrowing plan may worsen the business environment unless corrective steps are taken.
