Yatani defends Sh252bn IMF loan, says it'll bail out state agencies

Treasury Cabinet Secretary Ukur Yatani on Tuesday defended the government’s quest for a Sh252 billion loan facility from the International Monetary Fund.

Kenya is seeking the loan under the institution’s extended fund facility and talks are set to conclude in the first quarter of 2021.

The CS told the Star in an exclusive interview the money would inject more capital into state-owned enterprises undermined by the shocks of the Covid-19 pandemic.

Nine state companies are under financial evaluation for cash distress. They include Kenya Airways Plc, Kenya Power, KenGen, KBC, East African Portland Cement Company and Tarda.

Kenya Power’s liabilities stand at about Sh115 billion, Kenya Airways (Sh79.8 billion), KenGen (Sh205 billion), KBC (Sh79 billion) and Tarda (Sh9 billion).

Yatani said the IMF talks are a routine engagement in which the Treasury is looking at policy changes to reform the state enterprises.

“We are looking at how to make them efficient and make them fit for the purpose, including giving them guidance on how to perform better in terms of governance,” he said.

The CS praised the process as being of an international standard with an aim to make the institutions disciplined.

Yatani said it was the government of Kenya that approached the Bretton Woods institution for the funding.

“This is a programme out of our own choice with reforms targeting state enterprises and it will run for three and half years. There are no conditions imposed on us but rather agreed outcomes-results.”

The CS said the aim was to help these state enterprises meet international standards in terms of performance and business flow, among others.

Even so, there are concerns about the impact of borrowing on the state’s financial health.

International Budget Partnership-Kenya holds that the situation may take a turn for the worse if the economy doesn’t pick up for the remaining half of next year.

“It is tricky because of low revenue performance. The challenge is that the government is not keen on cutting expenditure; if you maintain the same level of expenditure without income, then borrowing is the only option left,” IBP-Kenya executive director Abraham Rugo said.

Kenya is Sh1.5 trillion shy of breaking its Sh9 trillion public debt cap and is also pursuing a Sh164 billion development policy operations loan from the World Bank.

The IMF in May approved a Sh78 billion loan under the Rapid Credit Facility to cushion the country against the adverse effects of Covid-19.

The World Bank at that time extended a Sh100 billion interest-free facility to combat the virus.

Central Bank data show that public debt reached Sh7.12 trillion as of September – an increase of Sh1.2 trillion over the same period last year.

Of these, about Sh835 billion has been borrowed since the virus was first declared in March, going up to Sh909 billion, factoring in principal arrears and accrued interest.

Treasury is yet to release more than Sh300 billion to counties as a result of dwindling revenue from taxes.

Yatani sought to allay fears the state was doing badly in terms of cash-flow, dismissing those assertions as "speculation".

However, the CS conceded that revenue has fallen below target. “Of course, you understand we are in an abnormal situation.”

“There is low business performance and revenue is also falling below target [and] we have an option of reducing expenditure. That does not necessarily mean there is stress,” he told the Star.

“Our debt level is sustainable; we are meeting our obligations as required; we are running efficiently as a government,” he added.

The CS explained, "We may be slightly low on revenue performance but that does not mean the situation is bad.”

National Assembly Minority leader John Mbadi, a member of the Budget committee,  said that borrowing money to help recover from the virus shock is not a bad idea.

The Suba South MP said there would be trouble if the money was borrowed domestically, adding that money from the two institutions is usually at concessionary rates.

“If the terms are at that level, it is a better idea. The other options would be to move to the domestic market whose interest rates are higher and this would have negative effect on the economy,” the MP said.

He said borrowing from local lenders “would work against the very reason we are seeking help".

Mbadi said the narrowing borrowing gap “should not be the biggest concern since it is hard to stay within the budget framework with the rate at which Covid-19 has ravaged the economy".

“The debt level is too high but we have to accept that the budget framework can only be obeyed in normal situations, this is abnormal,” he said.

(Edited by V. Graham)