Avoid duplication of roles at Treasury

From left: Bungoma Governor Ken Lusaka, Laptrust managing director Hosea Kili and Murang’a Governor Mwangi Wairia during a forum organised by Laptrust to discuss investments and alternative funding at the Safari Park Hotel in Nairobi on September 12, 2013. Photo/Salaton

 

By Jaindi Kisero

The idea of transferring the responsibility of managing public debt from the Central Bank of Kenya to the Treasury makes sense to me. But if we must do it, let’s do so for the right reasons.

I don’t buy the argument that we should transfer debt management to the National Treasury merely because some unscrupulous Central Bank staffers were recently found to have fraudulently issued fake Treasury bonds.

The integrity of government debt is critical, but preventing fraud in the system is just but one factor in the whole equation. After all, between the Treasury and the Central Bank of Kenya, which has a better record in prevention fraud public debt management?

Have we forgotten that the Anglo Leasing scandal- which was basically a case of manipulation of the public debt register- happened under the stewardship of the Treasury?

The transfer of functions should be based on the need to reform a dysfunctional system. In my view, the most pertinent issue to address is the conflict of interest situation which the Central Bank of Kenya finds itself in, having to oversee monetary policy while at the same time having to play the money market.

I want to see separation of powers between those who spend money (the National Treasury) and those who keep watch on monetary expansion.

A Central Bank that must go to the market every now and then to borrow money on behalf of the government in the context of constant pressure to deliver stable interest rates must constantly find itself in a conflict of interest situation. But even before we start transferring debt management to the Treasury, we will have to rationalise operations of the two departments at the Treasury handling debt issues.

Currently, the debt function is shared between the Debt Division –until recently -under Mr John Murugu, and the External Resources Department under Mr Jackson Kinyanjui.

The first department is responsible for domestic debt, while the External Resources Department deals with raising concessional loans from multilateral lenders and friendly foreign governments. Borrowings by the External Resources Department are mostly tied to specific projects.

Mr Murugu joined the Treasury in 2003 to head the new debt department. Under his regime, a great deal has been achieved. Today, we have a very transparent public debt register- you have accurate data on what we owe, who we owe and the cost of borrowing.

We have a medium- term debt management strategy. The division analyses our debts sustainability situation regularly. It produces The Annual Public Debt Management Report.

The problem, however, is that operations of the two Treasury departments are not well aligned.

For instance –when the inflows mobilised by External Resources come in- the government will place the money in project accounts with commercial banks as it awaits disbursement.

At times, the money will sit in bank accounts for months mainly because a large part of the money is for co-financed projects, which can only be released against conditions and ‘no objection certificates’ by the foreign lenders
.

You then have an unhealthy situation where commercial banks lend the money back to the government in Treasury Bills purchases.