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Kenya’s rising debt under control – Yatani

Treasury Cabinet Secretary Ukur Yatani has played down budget deficit concerns saying Kenya’s economy was no way close to getting ‘deeper into debt crisis.’

Mr Yatani said recently that the ongoing interventions by the State to reduce debt vulnerabilities through a revenue-driven fiscal consolidation “with a view to stabilizing debt to GDP ratio over the medium term,” will go a long way in mitigating such fears.

“Kenya’s public debt remains sustainable but the debt carrying capacity has however declined. Financing of the fiscal deficit will continue to be strictly guided by the Debt and Borrowing Policy and the annual Medium-Term Debt Strategy,” said Yatani in his 125-page speech which largely highlighted post-pandemic measures.

Given the projected revenues and grants against the projected expenditures, the fiscal deficit for the FY 2021/22 budget is projected at Sh929.7 billion equivalent to 7.5 percent of GDP.

The aforementioned fiscal deficit, Yatani insisted, was lower than the Sh 976.2 billion or 8.7 percent of GDP seen in the financial year 2020/21 budget.

The fiscal deficit for the financial year 2021/22 budget, according to the Treasury CS will be financed through both foreign loans and domestic loans from local commercial banks. This will include the net external financing of Sh 271.2 billion equivalent to 2.2 percent of GDP and net domestic financing of Sh658.5 billion equivalent to 5.3 percent of GDP.

According to a debt management strategy by Kenya’s national treasury in February this year, the country was projected to spend Sh458 which is a 2-billion servicing debt for the current 2020/21 financial year, against expected revenue of Sh815. 9-billion. For 2021/22 this is expected to rise to Sh560billion.

Indeed, as of September 2020, Kenya’s external public debt is estimated to have stood at 51.4 percent of its total debt stock of Sh7.1 trillion, a slight increase from 48.6 percent in 2011.

In 2020, the external debt composition was 39.3 percent for multilateral debt, 29.7 percent for bilateral debt, and 30.5 percent for commercial debt, according to figures by Afronomicslaw – which is a member of African International economic law network.

It has been a worrying trend in the last decade.

Public debt is estimated to have increased from Sh1.3 trillion 10 years ago and it is estimated to hit Sh8.7 trillion by December, and cross the Sh9 trillion mark by June next year. But despite that concern, Yatani maintains that Kenya’s borrowing trend is within global standards.

According to Yatani, the implementation of targeted policy, legal and institutional as well as addressing vulnerabilities in the State-Owned Enterprises hit by the COVID-19 Pandemic, will be other measures the treasury and relevant stakeholders will continue to channel its energies in the hope that the borrowing spree is under control.

This he said, included the reduction of the Central Bank Rate from 8.25 to 7.0 percent and lowering of the Cash Reserve Ratio from 5.25 to 4.25 percent thereby injecting an additional Sh 35.0 billion to the money market.

Further, the CS further pointed to interventions made during the pandemic period in which commercial banks were allowed flexibility to categorize their loans provisions.

“The Government is implementing reforms to strengthen the institutional arrangement of public debt management by aligning the operations of the Public Debt Management Office to the PFM Act.

In this respect, decisions on the day-to-day management and operations of public debt management shall be undertaken by the Public Debt Management Office to enhance efficiency, strengthen accountability and transparency,” Yatani said.

Since such calls were made in April 2020 – a month after the virus first entered in Kenya – Central Bank of Kenya’s figures show that over the last one year, more than 54 percent of the bank loans, equivalent to Sh1.7 trillion were restructured to enable borrowers navigate through the hard time due the pandemic.

Others include the awaited debate on the amendment of the public debt ceiling set in the Public Finance Management Act by MPs which Yatani says will enable the implementation of debt management operations including financing of the fiscal deficit.

“As we move to the recovery phase, the banking sector will be expected to play a pivotal role in supporting the recovery of enterprises,” Yatani assured yesterday.

In April for instance, hundreds of thousands of Kenyans expressed reservations against the International Monetary Fund (IMF) loan facility arguing that the country was borrowing beyond its limit to repay and was struggling with a huge debt burden.

The IMF in its response following the online petition however, reaffirmed its commitment to the $2.34 billion (Sh255 billion) loan to Kenya to address debt vulnerabilities and bolster the next phase of Covid-19 pandemic responses.

This was echoed last month by accountancy body PKF which called on the government to restructure its public debt management and to reconsider some of its recent tax policies if it was to remain competitive in the region.

PKF warned of a possible debt trap by the State if alternative sources of financing such as the public private partnerships are not considered – and further urging for adoption of long- term and convincing tax policies.

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