NEW RULES

Treasury admits to overborrowing, formulates new debt policy

The country's total debt shrunk marginally to Sh5.9 trillion in September from Sh6 trillion, Sh3.1 trillion being external while domestic debt is valued at Sh2.8 trillion.

In Summary
  • Treasury is also fnalising on the External Loans Contracting Manual, perhaps to tighten nose on expensive dollar denominated commercial loans
  • The Treasury CS will delegate operational decisions on borrowing and debt management to the Public Debt Management Office (PDMO to be created.
Acting Treasury CS Ukur Yatani on November 15, 2018.
Acting Treasury CS Ukur Yatani on November 15, 2018.
Image: /JACK OWUOR

The National Treasury has raised concerns about the growing public debt, admitting for the first time that the country is borrowing beyond means.

The Exchequer admitted this in the Debt Policy and Borrowing Framework designed to improve the quality of debt management decisions, debt statistics, analysis, reporting and dissemination and commitment to financial planning.

The country's total debt shrunk marginally to Sh5.9 trillion in September from Sh6 trillion, Sh3.1 trillion being external while domestic debt is valued at Sh2.8 trillion.

Acting Treasury CS Ukur Yatani on Wednesday said the sustained fiscal deficits have led to the increase in domestic and external debt stock accumulated through issuance of government debt securities and disbursement of external loans.

''This has exposed public debt to risk of seriously constrained budget resources, making it imperative that the appropriate structures are put in place to monitor and manage debt obligations and related contingent liabilities,'' Yatani said.

In the pursuit of reducing vulnerabilities to risks of public debt, the National Treasury has formulated a Debt Policy that for instance will see formation of two bodies to oversee international and local borrowing.

The Treasury CS will delegate operational decisions on borrowing and debt management to the Public Debt Management Office (PDMO) to be created.

There will also be a Government Securities Auction Committee (GSAC) to review and approve auction results. Central Bank of Kenya (CBK) has been the sole decision maker on government securities including announcing of weekly results.

Treasury is also finalising on the External Loans Contracting Manual, perhaps to tighten nose on expensive dollar denominated commercial loans that currently accounts for 60 per cent all interests to be paid on the external debt valued at Sh3.1 trillion.

The relevant National Treasury unit will be responsible for providing current information on outstanding contingent liabilities of all state-owned enterprises that includes both implicit and explicit obligations, as well as on-lending arrangements.

It is also drafting loan guarantee guidelines to be followed when supporting state agencies to procure loan facilities.

Several government bodies including Kenya Broadcasting Corporation (KBC) have in the past defaulted on loans, passing the cost to the exchequer.

''The primary objective is to ensure that the government financing needs and its payment obligations are met at the lowest possible cost over the medium to long run, consistent with a prudent degree of risk,'' Treasury said.