2019 Review: Treasury gets free pass on new borrowing

In a complete mirror opposite to his predecessor, Acting National Treasury CS Ukur Yatani threw in the towel on Kenya’s debt sustainability claims.

This is after he took over the reins at the Planning Ministry in July this year.

On the contrary, Henry Rotich had persistently maintained that Kenya’s debt had remained on a sustainable path to shoot down any queries on potential debt distresses.

Treasury’s previous regime had alongside Parliament turned a blind eye on the ballooning level of public debt to see the debt surpass the prescribed nominal rate of 50 percent to Gross Domestic Product (GDP) as per the 2012, Public Finance Management Act (PFM).

In a means to seemingly correct the wrongs of the past, CS Yatani would prompt Parliament to raise the borrowing limit to Ksh.9 trillion-an absolute figure as he sort to leverage on concessional funding to replace expensive commercial debt.

During the heated debate in both Parliamentary houses, Gatundu South Member of Parliament and member to the Budget and Appropriation Committee (BAC) Moses Kuria would peel back the mask on gross violations to the PFM Act by both Treasury and Parliament.

“For seven years, we have cheated this country about even our deficit. We have cooked books and taken loans at seven percent to leave on the table loans offered at one percent. To me, this is treason,” he said.

Wild Card

Moses Kuria would however see his quest to have the country’s debt audited thwarted even as both Parliamentary houses gave the nod to increase Kenya’s borrowing limit to a new Ksh.9 trillion ceiling through amendments to the PFM Act.

Controversially, Treasury’s request would receive the green light without there being an adequate elaboration on the sources of concessional funds.

Appearing before the National Assembly Budget Committee, CS Yatani would insist of the scope for concessional funds maintaining the Ministry remains engaged with a number of multi-lateral lenders on the cheap source loans.

Citizen Digital attempts to establish the room for new concessional funding from the World Bank would hit a brick wall as the multilateral lender reverted all queries back to the National Treasury.

According to Genghis Capital Senior Research Analyst Churchill Ogutu, the room for concessional funding remains in doubt to cast gloom to Yatani’s redemption plan.

“Moving to concessional funding in the middle of a financial year is a tall order. You can however get the argument on why this would be a good thing,” he said.

However, Ogutu welcomes the setting of Kenya’s borrowing limit at absolute terms terming the previous metric of Net Present Value (NPV) as a ‘linguistic gymnastic’

By Yatani’s own account, the reduction of Kenya’s debt level remains tenable through a mix of concessional funding and cuts to recurrent expenditure.

Eurobond IV?

The entry of the first Supplementary budget inside four months into the financial year would however water down most of the National Treasury utterances as the appropriations bill fell outside the promised cuts to the budget.

Instead, the Supplementary budget, subsequently adopted by the National Assembly on December 4 would introduce new spending totalling to Ksh.54 billion as the Treasury made further appropriations towards the executives four-pillar economic transformation plan.

The additional appropriations however came on the back of falling revenue mobilization in the first four months of the financial year to October by Ksh.108.6 billion to result in a wider than desired fiscal deficit.

According to data contained in the Quarterly Economic and Budgetary review to September 30, the fiscal deficit came in at Ksh.123.5 billion or an equivalent 1.2 percent of GDP against an approved target of Ksh.70.6 billion/0.6 percent of GDP.

Combined, lower domestic revenue mobilization, higher spending and blurred concessional funding signify the likelihood for more borrowing from both an internal and external position.

Already, the Budget Review and Outlook Paper (BROP) has retained net external financing at Ksh.357.50 billion comprising of Ksh.200 billion in new external borrowing with the most possible sources being syndicated loans such as the Eurobond to mirror the likelihood of Kenya returning to the international financial markets in 2020 as has been the routine.

Domestically, borrowing which mainly entails the selling of Treasury Bills and Bonds is expected to round off to Ksh.429.4 billion to comprise of a raised net borrowing limit of Ksh.391.4 billion and Ksh.122.6 billion in debt rollovers.

Presently, the government is yet to tap onto external commercial loans but has exceeded its domestic borrowing guidance having eaten up Ksh.168.6 billion in bills and bonds, an attribution to the reality of falling revenues according to researchers at Sterling Capital.

Edge of the Abyss

Interlocked in the new borrowing ceiling debate is on where the edge of the cliff arises in regards to Kenya meeting its debt obligations.

Kenya is however yet to default on any of its external debt obligations so far even as tough lessons from defaulters such as Greece remain fresh in the minds of many fiscal observers.

“The last thing you would want is the downgrading of the sovereign credit rating because we are unable to meet our debt obligations or have had to reschedule payments, KPMG Tax Associate Director Robert Waruiru told Citizen Digital in a November interview.

At home however, the government has failed it its definition of a free risk entity having slacked in its payment of bills to suppliers and further faces a hefty pension bill estimated at Ksh.1 trillion.

The National Treasury has however moved to assure more transparency in public debt management to put forth the reconstitution of the Public Debt Management Office (PDMO) and the return of the external debt register.

Churchill Ogutu has however termed the changes as a mockery of transparency with early drafts failing to clear up terms and conditions to the externally issued debt.

Kenya’s public debt to September increased by Ksh.822.4 billion to Ksh.5.96 trillion while net public debt stands at Ksh.5.44 trillion less on-lending and government deposits.

Externally, commercial bank loans top all other sources at Ksh.1.1 trillion while local lenders top holdings in government bills/bonds with another Ksh.1.4 trillion.

Bi-laterally, China holds 67 percent of net loans by way of country or an equivalent 659.1 billion against concerns on the viability of the country’s supported projects including the controversial Standard Gauge Railway (SGR).

Multi-lateral lenders including the International Monetary Fund (IMF) and the World Bank take up a total of Ksh.1 trillion in loans while export credit take up the remainder of loans.