Treasury is unveiling a new debt policy whose main deal will be to retire most of the expensive loans that the current administration has accumulated.
Acting National Treasury Cabinet Secretary Ukur Yatani said that going forward, the country will try to minimise uptake of expensive commercial loans which have increased the country’s risk for defaulting.
“We are planning to retire most of the commercial loans and replace them with concessional ones,” said Yatani, noting that it would, however, take some time.
Commercial loans are usually given at expensive rates - above market rates and have shorter repayment periods and longer grace periods.
Recently, Treasury has been revamping the debt management office, having confirmed Dr Haron Sirima as its Director-General.
It has also recruited up to 20 experts in what is aimed at sharpening the Government’s focus on the management of costs and ability to raise and service new debt, the Treasury said in a notice inviting applications for the jobs.
Besides syndicated loans from commercial banks, other commercial loans that Kenya has received include Eurobonds, which are dollar denominated bonds given to countries.
As of June 2019, the stock of commercial loans including those from banks and sovereign bonds stood at Sh1 trillion or 36 per cent of the entire debt.
Last year, the country borrowed an additional Sh770 billion to drive the total debt to Sh5.8 trillion.
As part of its goal of reducing its appetite for debt, the Government has been working on an austerity plan that will see it reduce much of the non-essential spending, even as non-priority development projects are pushed forward.
The expenditure on salaries and allowances during this period showed a 12 per cent increase, from Sh377.7 billion that was spent on personnel emoluments.
Recurrent expenditure – spending on salaries and administrative costs – increased to Sh1 trillion, up from Sh913 billion recorded the previous year, even as taxes stagnated.
As a result, the country’s fiscal deficit – the difference between revenues and expenditure – widened to 7.4 per cent of GDP .
This saw the country’s stock of public and publicly guaranteed debt surge to Sh5.81 trillion.
The National Treasury borrowed Sh770 billion in the 2018/19 financial year that ended in June, against an initial target of Sh635.5 billion, or 6.3 per cent of the GDP, as increased wages and interest on loans forced the country back into the debt market. This was a growth of 15.2 per cent from Sh5.039 trillion recorded in the previous year to Sh5.8 trillion debt in the period under review.
Last week, acting Treasury Cabinet Secretary Ukur Yatani said the Government will cut unnecessary expenditure, such as foreign trips and advertising by Government departments to bridge fiscal deficit.
Deficit to drop
Cuts on advertising will, however, affect local media houses which rely on government business for most of their commercial income.
“The cuts will be brutal and will be sustained,” Mr Yatani told a meeting to plan the government’s budget for the next fiscal year, adding that he expected the deficit to drop to 3.5 per cent of GDP by the 2022/23 fiscal year. For the current Financial Year, the Treasury unveiled several austerity measures, including freezing the recruitment of civil servants, except for key technical staff, security personnel, teachers and health workers.
The Government will also not extend the service of thousands of civil servants set to retire after attaining the age of 60.
Moreover, Treasury announced plans to undertake another purge on the Government payroll to weed out ghost workers.
The CS also acknowledged that the Government had been leasing office space at higher than market rates, resulting in huge costs.
Last year, the country lost access to International Monetary Fund’s (IMF) precautionary facilities after the fiscal deficit climbed to 9.1 per cent of GDP in the 2016/17 financial year as the Government took loans mostly from China to finance mega infrastructural projects such as the Standard Gauge Railway.
The fiscal deficit would later go down to 7.1 per cent of GDP in June, last year, which was within the country’s commitment to the IMF.
The Treasury then promised the IMF to further bring down the fiscal deficit to 5.7 per cent of GDP by 1.5 percentage points.
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