In the past, National Treasury Cabinet Secretary Henry Rotich has told off the International Monetary Fund on the country’s rising debt levels. As a newspaper with a keen interest in the social and economic progress of the country, we can only hope that Mr Rotich is right and the US-based institution is wrong.
But no, Rotich is wrong. We do not want to bring in the sentiments of another Anglo-American institution, the World Bank Group. This would trigger a predictable defence citing neo-colonialism, a cliché that many African leaders and policymakers resort to when cornered.
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We only need to look at recent comments from financial experts and Treasury officials who, unlike Rotich, seem to have come to terms with the fact that our public debt is becoming unsustainable.
In July, during Moody’s fifth Annual East Africa Summit in Nairobi, Central Bank of Kenya (CBK) Governor Patrick Njoroge admitted that the Government had run out of headroom for more debt uptake.
“We have less headroom to borrow and we are running out of space. We need to look at public-private partnership and build, operate and transfer models,” said Dr Njoroge.
This position was echoed by Rotich’s Principal Secretary Kamau Thugge when Treasury unveiled the Public Private Partnership (PPP) Disclosure Portal, from where the public, media, civil society and other interested parties will learn about PPP deals signed in the country.
Dr Thugge noted that with the legroom to chalk up more debt shrinking, PPP was the only way for the Government to continue with mega infrastructure projects without bursting the debt limit.
“PPP is our way of having our cake and eating it,” said Thugge. He admitted that the country’s mega infrastructure projects had largely been debt-financed.
Moody’s, a rating firm that has since downgraded Kenya’s credit worthiness due to its debt levels, pointed out that the country’s reliance on expensive loans had seen it get harsh terms from creditors.
“Interest payments take up a larger share of Government revenue in all four East African countries compared with five years ago,” Moodys said in a report. “The deterioration in debt affordability has been most severe in Kenya; interest on debt took up 19 per cent of revenue in FY 2016/17, up from 11 per cent in FY 2011/12, which was already above the B-rated median,” the ratings agency said.
And, yes, the World Bank has also faulted the National Treasury for poor management of debt, piling more pressure on CS Rotich. In a report released this year, the Washington-based lender noted that Kenya’s score on the sub-cluster of debt management declined to 4.0 last year from 4.5 in 2016. The global lender cited weak capacity of Treasury’s Debt Management Office and failure to implement the country’s debt management strategy.
The World Bank said it was regrettable that without adequate staff and clear leadership and accountability, the office faced challenges in carrying out its work. It also noted that Treasury had been dragging its feet on the implementation of reforms to strengthen the country’s debt strategy. The reforms have been pending for several years.
Treasury recently announced that it was recruiting debt management experts to provide guidance in determining borrowing ceilings for the national and county governments.
The global lender also blamed the country’s poor performance on debt management on Treasury for paying lip service to its framework on prudent debt management.
“Another factor was that in November 2016, the Government of Kenya published the Medium-Term Debt Management Strategy for 2017/2018 to 2019/2020.
“Although on paper the Medium-Term Debt Management Strategy provides a framework for prudent debt management, it is not clear that it is being followed, considering the sovereign debt trajectory that has kept increasing at a sustained pace over the past years,” reads the report titled Country Policy and Institutional Assessment 2017.
Even more critical is that while the country’s debt is growing, its revenue is not increasing as fast. The result has been pressure on the country’s revenue.
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Mr Rotich, putting your head in the sand will not help. You need to put your act together and wean Kenya from this binge-borrowing.