Kenya’s debt bigger than reported

What exactly is the size of Kenya's public debt? According to the 2021 Budget Policy Statement, Kenya's public debt as of June 2020 stood at Sh7.06 trillion, which is equivalent to 65 percent of GDP.

In December 2020, the Treasury claimed that the figure was Sh7.2 trillion, which was 65.6per cent of GDP. So the Treasury is simply saying it only borrowed Sh200 billion in the first half of this year, which is not true.

At the same time, in November 2020 the Treasury in its Post Covid-19 Economic Recovery Strategy stated that public debt was at Sh8.41 trillion. This means that the Treasury has no headroom to borrow Sh1 trillion in the 2021-2022 financial year — explaining the effort to raise the debt ceiling.

In reconciling this discrepancy, the Treasury claims that this arises from committed but undisbursed concessional loans. For example, loans from the World Bank or the IMF are always attached with conditions that the government is required to meet in order to access.If the government is yet to meet those conditions, it is committed but undisbursed.

Now, the Treasury is being economical with the truth when accounting for these undisbursed loans. It says these loans should not be added to the stock of public debt when the moment government and a lender enter into a commitment, the loan is reported as a liability on government books. So, the undisbursed loans are part and parcel of Kenya's public debt register.

Taxpayers are already paying commitment fees accruing from these undisbursed loans, which is whispered to be totalling Sh2 billion. So how can taxpayers be paying commitment fees for these undisbursed loans, but they are not a liability in government books?

Let us do simple accounting. With public debt at Sh8.4 trillion in November 2020 we will likely see it at around Sh8.8 trillion by the end of this financial year, which is June 2021. Now, add Sh3.4 trillion, which the IMF has pressured government to add on its register arising from parastatals and county loans, Kenya's debt portfolio stands at Sh12.2 trillion at the end of this financial year. Therefore, we should either move the debt ceiling to Sh15 trillion and above or simply remove the ceiling because it has become meaningless.

Second, we have been pre-occupied with refinancing of Eurobonds and forgotten refinancing of domestic debt where we are already off the track. The Treasury has been rolling over matured bonds but recently we have seen a number of bonds being undersubscribed. This simply means that the government was not able to raise enough money to roll over the debts and therefore has to dig into revenue collection to pay those investors. This is coming at a time when we are missing tax collection targets, an alarming concern.

So, when the media reports the Treasury numbers about the size of the budget verbatim, they are simply abetting this financial indiscipline because the Treasury always covers this by publishing the size of the budget after factoring out these loans that are to be rolled over. Yet the taxpayer ends up paying for them, creating an accountability leakage.

But the public debt quagmire is about to become worse if the Bill before Parliament that intends to establish the Public Debt Management Authority passes. It's evident that Kenya's debt problem is about a structured legislation for full disclosure of all the public debt. This means having an independent office away from the Treasury running and auditing the public debt register.

But the Bill has gone ahead of itself to propose that the authority be given the role of issuing and negotiating debts apart from running the register. The world over, issuing of bonds is a prerogative of the Treasury, and this proposal will make the authority part of Treasury and not an independent office.

Also, we already have a better structure in place for issuance — that is the Central Bank of Kenya. The proposer should borrow a leaf out of the structure of the Auditor-General if he hopes to enhance accountability around public debt.