DEBT MANAGEMENT

Finance experts seek reforms to regulate state borrowing

The organization says Kenya has breached all three public debt sustainability thresholds for overall debt

In Summary
  • The organization said  this will help the government ensure the cost of risk and debt portfolio management are maintained within acceptable limits.
  • The organization also called on Treasury to develop a public debt register to enhance transparency and accountability in public finance management.
Treasury building
Treasury building
Image: FILE

The Institute of Public Finance(IPF) Kenya wants the government to institute legal reforms to regulate the country's external and domestic debt deals.

IPF in its Kenya debt profile report says this will help the government ensure the cost of risk and debt portfolio management stay within acceptable limits.

“Kenya has so far breached all three public debt sustainability thresholds for overall debt; two out of four in external debt,” says the organisation.

It also called on the National Treasury to develop a public debt register with relevant information about the country’s debt profile for transparency and accountability in public finance management.

For proper use of borrowed funds for development projects, IPF wants the office of the Controller of Budget to tighten its oversight

IPF warns that if the changes are not adopted, the government expenditure on debt service repayment could hit the one trillion mark for the first time, in the financial year 2021/2022 .

The Covid-19 pandemic led to an increase in the stock of public debt as the country contracted new loans to mitigate the spread of the virus.

This, in retrospect necessitated borrowing either domestically or externally to offset the budget deficits.

Kenya borrowed Sh1.06 trillion during the coronavirus pandemic period pushing the country’s public debt to the above Sh7trillion mark.

According to the Controller of Budget, the country’s total debt stood at Sh7.34 trillion as of March 31, 2021.

According to IPF, the borrowing saw Kenya’s debt carrying capacity massively downgraded from strong to medium.

This it says signalled increased liquidity risks due to the government spending a larger share of the country’s revenues on debt payments.

“In the last decade (2010 - 2020), public debt from private lenders rose from a 4 per cent share of external debt to 30 per cent leading to a sharp increase in cost debt servicing and financial risks. Public debt from multilateral lenders also declined from 66 per cent share in 2010 to 33 per cent in 2020 while the share of loans from bilateral lenders has generally remained the same at around 33 per cent,” said James Muraguri, the founder and CEO at Institute of Public Finance.

An analysis of Treasury data shows that the total public debt accumulation between June 2013 and December 2020 is at Sh5.458 trillion, six times the amount accumulated between 1963 and 2012.

“This raises public concern about the increasing public debt and sustainability actions,” said IPF.

The National Treasury projects that KRA will collect Sh1.8trillion in taxes and spend about Sh1 trillion on debt service repayment inclusive of interest and principal redemption and transfer about Sh370billion to counties as equitable share.

The Sh430billion left is not enough for the executive (Sh1.9 trillion), the Parliament (Sh38 billion) and the Judiciary (Sh18billion) hence the acquisition of more public debt to fund the deficit is inevitable,” says Muraguri.