Capital Markets

Parliament delays creation of kitty for debt payment

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Treasury's Public Debt Management Office Director-General Haron Sirima. FILE PHOTO | NMG

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Summary

  • The National Assembly is yet to approve the creation of a special fund to “ring-fence” cash for repayment of maturing debt, dealing a setback to plans to ease future cash flow pressures on the government.
  • The Public Finance Management (PFM) Act 2012 requires the Treasury to get the green light from lawmakers to set up the “Sinking Fund”.

The National Assembly is yet to approve the creation of a special fund to “ring-fence” cash for repayment of maturing debt, dealing a setback to plans to ease future cash flow pressures on the government.

The Treasury said on Monday the approval of the Public Finance Management (Sinking Fund) Guidelines, which Cabinet Secretary Ukur Yatani gazetted in May, is still pending before Parliament, holding up the creation of a kitty from which maturing loans will be paid.

The Public Finance Management (PFM) Act 2012 requires the Treasury to get the green light from lawmakers to set up the “Sinking Fund”.

The cash in the Fund will be spent on paying off maturing loans, buying back bonds when interest is low, and retire some of the debts earlier to avoid higher costs in the future, among other debt-related uses.

Expenditure on principal sums for Kenya’s debt is estimated to jump 21.86 percent to Sh608.90 billion in the current financial year from an estimated Sh499.66 billion spent in the previous year, rising further to Sh715.67 billion the one ending June 2013 and Sh990.69 billion in the one that will follow.

“(The operation of Sinking Fund) is a matter before Parliament,” director-general for public debt management office at the Treasury Haron Sirima said.

The setting up of the Fund will “build up resources for meeting maturities of loans” from bilateral and multilateral lenders as well as bonds issued locally and internationally (Eurobonds).

“It provides flexibility to undertake debt management operations to lower cost and minimise risks in the public debt portfolio,” Dr Sirima said in a past interview.

The rules empower the head of the public debt management office to borrow and deposit into the Fund cash equivalent to what has been budgeted for the redemption of domestic and external debt with approval from the Cabinet secretary.

Additional sources of cash for the Fund include fees and commissions earned by the debt management office, foreign exchange gains and income invested from the balances after settling redemptions due.