Debt transparency opaque in poor countries like Kenya - WB

Debt transparency is still vague in low-income countries including Kenya, even as they emerge from the Covid-19 pandemic with the largest debt burdens.

In the latest report by World Bank dubbed 'Debt transparency in developing economies, the global lender says lack of openness on debt borrowing will delay critical debt reconciliation and restructuring. 

The study finds that 40 per cent of low-income countries have not published any data about their sovereign debt for more than two years—and that many of those that do publish it tend to limit the information to central government debt. 

''These gaps make it harder to assess debt sustainability and for over-indebted countries to restructure debt promptly and generate a durable economic recovery,'' the World Bank report reads in part. 

According to the global lender, debt transparency covers the availability of debt data and borrowing processes that are legitimate, rule-based, and traceable.

However, this is only part of debt transparency as reporting needs to be complemented by borrowing processes and practices that ensure that new debt is contracted responsibly and in line with sound legal and operational frameworks to minimize enforcement uncertainty.

It explains that borrowers and creditors need detailed information on the outstanding stock of public debt, including terms and conditions, to make informed borrowing and lending decisions; citizens also need this information to hold their governments accountable.

Although the report cites Kenya among a few developing countries in Africa with sound public finance management legislation, elements of lack of transparency in borrowing still linger. 

The Public Finance Management Act 2019 put breaks on the National Treasury's monopoly of opinion and decisions on borrowing, giving members of Parliament powers to decide on the debt ceiling. 

Currently, the country's total debt borrowing has been capped at Sh9.1 billion. There is a push by the exchequer to review the debt limit to Sh12n trillion.

There is a plan to give her parliament absolute powers to evaluate and decide on the country's annual borrowing.

For instance, the Public Finance Management (Amendment) Bill 2019, in part, will require the Cabinet Secretary shall submit to the National Assembly the intended purpose for borrowing and the envisaged repayment plan.

MPs seek to entrench the oversight role of Parliament in law by ensuring that the National Assembly pays attention to the budget’s revenue side and not just on the expenditure part.

The proposed law mandates the Cabinet Secretary in charge of the National Treasury to seek Parliament’s approval before effecting any borrowing of funds.

According to World Bank, many developing countries are relying increasingly on resource-backed loans—in which governments secure financing by putting up future revenue streams as collateral.

Resource-backed loans accounted for nearly 10 per cent of new borrowing in Sub-Saharan Africa between 2004 and 2018. More than 15 countries have such debt, but none provide details on the collateral arrangements.

It adds that, although Central banks are also using monetary-policy tools, such as repos and swaps, to facilitate government borrowing from foreign creditors, such borrowing is neither clearly identified in the central banks’ balance sheets nor captured in the databases of international financial institutions.

Domestic debt markets in the poorest economies are also opaque: the report finds that just 41 percent of these economies use market-based auctions as the main channel to issue domestic debt. And those that use auctions divulge only spotty information to investors.