End bureaucracy in debt management

Opinion and Analysis

Liaison Group managing director Tom Mulwa. He says the government should work towards reducing the spiralling recurrent expenditure. Photo/FILE 

By Jaindi Kisero, jkisero@ke.nationmedia.com

Even the most strident critics of the government will accept that our debut Eurobond was a big success. It was a vote of confidence on our economy by international capital markets.

Sceptics will of course interpret the success of the debut Eurobond differently. You will hear the argument that it’s all about hunger for yields by foreign investors, owing to ultra- loose policies in Japan, Europe and the US.

 

That it is about vulture funds looking for debt from high-interest and inefficient economies in developing countries.

Responding to the new way of issuance of sovereign bonds by African countries, the managing director of the International Monetary Fund, Christine Lagarde, warned that the trend would increase vulnerability of African economies to global financial shocks.

I choose to be an optimist. If the government reviews its domestic borrowing plan for this year significantly as it has said, we should start seeing interest rates trending downwards.

Mark you, the effect of the Eurobond will be kicking in tandem with the advent of a regime of ‘managed interest rates” where commercial banks will now be forced to operate within the newly introduced Kenya Banks Reference Rate and an Annual Percentage Rate.

Are we back to the ancient regime of administratively dictated and controlled interest rates? No. What we are introducing is a managed interest rate regime.

Different commercial banks will no longer introduce different base rates. And, through the new Annual Percentage Rate process, commercial banks will be forced to openly declare elements in the huge lending spreads they have been charging customers.

Treasury secretary Henry Rotich said on Wednesday that-going forward- Kenya would now be issuing sovereign bonds regularly, diversifying into Asia and the Middle East.

Me thinks that it’s time we upped our game with regard to public debt management. Currently, debt management responsibilities are divided among multiple departments at the Treasury plus the Central Bank of Kenya.

The Debt Management Division at the Treasury maintains a debt and guarantees database and is responsible for debt service payments. It is a fully-fledged division of the National Treasury under a director. The current director is Felister Kavisi.

Then you have another completely different department, the External Resources Department whose job is to negotiate and contract loans from official creditors- bilateral governments and institutions such as the European Union and the World Bank.

The current director is long-serving Treasury insider Jackson Kinyanjui.

The Directorate of Government Investments and Public Enterprises manages guarantees and on lending agreements with State corporations. It is under Investment secretary Esther Koimett.

The third player in the space is the Central Bank of Kenya, which manages the issuance and register of domestic securities and bonds on behalf of the government.