IMF pushes Kenya to cut ballooning public debt

Kenya will hire a full time director general in charge of debt as the International Monetary Fund (IMF) pushes Kenya to manage debt.

The Bretton Woods institution says Kenya will have to adopt at least five new measures to manage its ballooning debt. In its September 2015 country report on Kenya, the lender has disclosed that Kenyan authorities have adopted a preemptive approach to process debt repayments.

This will see the country start writing cheques to service debts well before they fall as opposed to the waiting for the lenders to come knocking before the process starts. Kenya is now relying on its reporting systems rather than on invoices from lenders to start processing debt.

Second, the payment process will start 30 days before the due date, to allow for internal approvals by National Treasury and Controller of Budget and timely settlement by the Central Bank of Kenya.

Third, the Debt Management Office (DMO) will elevate to the Cabinet Secretary of the National Treasury a quarterly report with all obligations coming due, in order to ensure accountability.

Fourth, internal processes between the different units involved in the process will be fully automated.

And fifth, there will be a strengthening of staffing at the DMO, with the appointment of a full time Director General and strengthening of risk and compliance functions.

“The authorities and staff agreed to bring the fiscal deficit on a path broadly consistent with the original programme, targeting an overall deficit of about 4 percent of GDP in 2018/19. Such a strategy would help avoid potential financial crowding out of private sector activities, and contribute to a more balanced policy mix helping to better maintain aggregate demand in line with external financing conditions,” IMF says in a report released Thursday.

It says Kenya intends to reduce public debt below 45 per cent of GDP in the medium term. Currently Kenya’s debt is above 48 per cent. The lender has revised Kenya’s GDP growth downwards to 6.5 per cent in 2015 from its earlier projection of 6.9 per cent.

It has also trimmed the 2016 growth numbers from 7.2 per cent to 6.8 per cent as the lender becomes less ambitious on the country’s growth.

Safeguards

Inflation for 2015 was revised upwards to 6.4 per cent versus an initial plan of 5.2 per cent. Current account balance is expected at 9.9 per cent versus 7.3 per cent; but still lower than 2014 level of 10.4 per cent. The lender expects Kenya’s gross international reserves to decline to 3.9 months from 4.4 months last year.