Bunge urges review of treasury bond rates
DODOMA: THE Parliamentary Budget Committee has advised the government to review interest rates on treasury bonds, warning that the current structure risks crowding out private sector borrowing.
The budget committee raised concern that attractive returns on government securities have drawn commercial banks to prioritise lending to the government rather than extending credit to individuals and businesses.
Presenting the committee’s opinion on the 2025/2026 budget estimates tabled last week by the Finance Minister, Chairperson Oran Njeza noted that commercial banks currently hold approximately 33.1 per cent of the domestic government debt, largely due to the favourable interest rates offered on treasury bonds and bills.
“This trend poses a challenge to private sector growth,” Mr Njeza stated on Monday, warning, “If left unaddressed, it could stifle investment and slow economic development.” According to data presented by the Budget Committee, the average interest rate on short-term government securities in the interbank market rose significantly—from 5.37 per cent in 2023 to 7.50 per cent in 2024.
The overall rate for short-term government securities also jumped from 7.32 per cent to 10.67 per cent during the same period. The Budget Committee suggested that this spike in returns has made government debt instruments more appealing to banks, even as other interest rates in the market show mixed trends.
“For instance, fixed deposit rates increased modestly, with the average rate on time deposits rising from 7.07 to 7.85 per cent. Similarly, one-year bank deposit rates increased from 8.65 per cent in 2023 to 9.17 per cent in 2024,” explained the committee’s chair.
He informed the august House that lending rates have seen a slight decline, whereas the overall average lending rate fell from 15.75 per cent to 15.47 per cent, and one-year loan rates declined from 16.53 per cent to 15.82 per cent.
“Interest rates on customer savings, however, dropped more sharply from 10.08 per cent to 8.14 per cent, thus, raising concerns over the real returns for depositors in a period of increasing inflationary pressure,” Mr Njeza stated.
The committee emphasised that while government borrowing is essential for financing development projects, care must be taken to ensure that it does not come at the expense of private sector access to finance.
“A thriving private sector is crucial for job creation, innovation and long-term economic resilience,” Mr Njeza stressed. The committee called on the government to come up with a balanced approach that would ensure sustainable public borrowing while maintaining a healthy credit flow to the private sector.
