The African Development Bank (AfDB) has cautioned that inadequate capacity at the Treasury’s debt office and Parliament, is contributing to Kenya’s spiralling public borrowing.
The continental lender said in a report that the two institutions tasked with overseeing and managing the country’s borrowing are unable to identify fiscal risks to contain rising debt burden.
“The ability of the National Assembly to provide oversight and undertake rigorous assessment of the debt situation is limited due to shortage of human and institutional capacity,” said the continental lender in a report on Kenya’s growing debt burden.
“The situation is compounded by similar inadequacies of the Public Debt Management Office (PDMO) at the National Treasury.”
Years of heavy borrowing for infrastructure, recurrent expenditure and debt refinancing have pushed Kenya’s public debt to risky levels.
At 65 percent of gross domestic product (GDP), the country’s debt is well above the current upper limit of 55 percent of GDP.
The report, dubbed Unpacking the Drivers of Public Debt Dynamics in Kenya, is authored by AfDB country economist Duncan Ouma and senior research economist Martin Nandelenga, and was published last week.
As a lawmaking body, the National Assembly is responsible for managing the country’s debt levels –which it set at an upper limit of 55 percent of GDP.
It is also mandated to oversee fiscal planning and spending, both directly and through departmental and audit committees supported by technical experts.
To strengthen this oversight, Parliament established the Parliamentary Budget Office (PBO) in 2007 to help MPs scrutinise and monitor the national budget and its implementation.
In an interview, PBO director Martin Masinde said the office has adequate capacity, with skilled staff who are capable of executing its role of advising Parliament, but the legislators barely take its advice.
“Capacity is continuous of course, but PBO has adequate capacity to analyse debt issues, but as to whether the advice is taken by members of parliament remains another issue, which is now within the political arena,” Dr Masinde said.
He added that the National Assembly’s Public Debt and Privatisation Committee and other key oversight committees, which are supposed to be led by the opposition, aren’t currently functioning effectively as needed.
“The current structure seems as if the opposition has been subsumed into the entire government structure as it were,” he said in a phone interview.
The AfDB said Kenya, unlike many middle-income countries, has a solid legal framework for prudent debt and fiscal management, but the legislature’s incapacitation has curtailed effective control of the government’s borrowing appetite.
“Although there is political will and the legislature for prudent fiscal management, the oversight of debt procurement and usage is hampered by inadequate capacity at the National Assembly,” said the AfDB.
The problem extends beyond Parliament. The report finds that the Treasury’s PDMO, tasked with ensuring responsible and affordable borrowing, faces similar shortcomings.
“The PDMO is unable to identify fiscal risks to mitigate rising debt. This is evident in the rapid accumulation of poorly structured debt with short maturity, high interest rates, currency mismatches and financing of contingent liabilities, which have increased repayment pressures.”
Established in 2012 under the Public Finance Management Act, the PDMO was meant to comprise experts dedicated to ensuring cost-effective borrowing and balancing the burden and benefits of debt between current and future generations.
Auditor-General Nancy Gathungu last year revealed last year that one of the main reasons the country ends up with costly loans is the PDMO lacks adequately skilled officers to negotiate them.
She found that the office's debt policy, strategy and risk management department not only suffer from staff shortages but is also manned by officers who lack the technical skills to properly scrutinise loan terms and negotiations.
Beyond boosting the technical capacity of both Parliament and the PDMO, the AfDB recommends establishing an independent fiscal council comprising experts from the Treasury and academia to guide Kenya’s borrowing.
“The authorities may consider formation of an independent fiscal council by tapping expertise from the National Treasury and academia to make predictable revenue forecasts, determine fiscal risks and provide advisory services on debt contraction to improve fiscal management,” said the bank.
The AfDB provides fiscal and economic policy advice to governments across the continent, in addition to offering loans for budget support and special programmes.
