Even as Kenya's National Treasury agonises over a workable
formula to tackle its debt, parliament and analysts are accusing it of
fiscal indiscipline and likening the setting of the recent debt ceiling
to "squaring a circle,” insisting it is an exercise in futility unless
it is accompanied by budget reforms and transparency of external debt.
Last
month, Treasury managed to push for an increase of the public debt
ceiling to Ksh9 trillion ($87 billion) to give room for more borrowing
to retire current expensive loans that have seen the public debt
skyrocket to $58.1 billion by end June, from $15.5 billion same period
in 2012.
Acting National Treasury
Cabinet Secretary Ukur Yatani argued that an absolute figure rather than
a percentage of GDP provides adequate controls and oversight through
openness, accountability and clear fiscal reporting.
The
imposing of the ceiling through the amendments to the Public Finance
Management (National Government) Regulations of 2015 resulted in a
change in the public debt limit from 50 per cent of GDP in net present
value terms to Ksh9 trillion.
The
Parliamentary Budget Office (BPO) reckons that going by the rate of
fiscal indiscipline evidenced by a lack of commitment to fiscal
consolidation that has played out in recent years, Kenya is likely to
breach the ceiling in the medium term.
Projections already indicate that public debt will hit $60 billion by 2020 and $70 billion in 2022.
“With the inability of adhering to the fiscal
consolidation path, the trend of debt accumulation is likely to continue
rising,” said BPO in a report titled Up-scaling Public Expenditure Oversight and Efficiency.
It
added that the ratio of debt-to-GDP is likely to be contained by
economic growth rather than debt fiscal policy designed to contain the
expenditures.
Kenya’s debt-to-GDP ratio that stood at 59.9 per cent in September is on course to hit 61.6 per cent by the end of this year.
Genghis
Capital said that the ceiling is likely to be breached by June 2023
because Treasury continues to demonstrate high levels of indiscipline at
a time when Kenya is feeling the pressure of ballooning deficit.
The
deficit void remains monumental even after reducing to 5.6 per cent of
GDP in the current financial year from 6.8 per cent in 2018/19, and 7.4
per cent in 2017/18. Kenya is targeting to further lower the fiscal
deficit to three per cent in the medium term (2022/23) in a bid to
reduce public spending and limit borrowing.
“Debt
limit alone cannot be the cure-all of fiscal indiscipline because it
will not be cast in stone but will be dynamic,” said Genghis Capital in a
research note.
It added that a cloud
of opacity shrouds external debt, a case in point being the secrecy
that surrounds the financing terms of the standard gauge railway.
Despite
promising the ceiling would provide adequate controls and oversight on
growth of public debt, Treasury’s dilemma on managing debt conundrum
continues to manifest itself.
With
accusations that it is just a matter of time before breaching the
ceiling, Kenya now believes a comprehensive debt policy offers the
ultimate solution.
Effectively, the
Treasury has developed the Debt Policy and Borrowing Framework whose
objective is to ensure government financing needs and payment
obligations are met at the lowest possible cost and are consistent with
cautious degree of risk.
The policy
that targets to instil discipline in borrowing and debt servicing will
act as a guideline for debt management practices, a development that
could be emulated by other East Africa Community member states where
debt is casting a dark cloud to economies.
Strangely,
the policy accords the powers over the decision to borrow on behalf of
the government to the National Treasury cabinet secretary. This is
irrespective of the fact that suspended Cabinet Secretary Henry Rotich
has largely been accused of abusing his powers to sink the country into
the current deep abyss of public debt.
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