Weak link in proposed debt office

One of the follow-up questions I have received from last week’s article on Kenya under-declaring its public debt is about the quagmire the proposed Public Debt Management Authority will create, a concern I raised at the end of the article. So, let me take it from there, explaining the convoluted structure the proposed authority will create.

The concern about Kenya’s public debt is largely about sustainability, the Treasury continues to pile debt unhinged and at the same time doesn’t make full disclosure of the prevailing debt levels for public scrutiny on debt sustainability. Parliament, which has the constitutional duty and mandate to hold the executive accountable, has dropped the ball in demanding full disclosure and accountability of Kenya’s public debt. Instead, it has been a rubber stamp of this public finance malfeasance. For seven years, the Treasury has been submitting budget after budget with fiscal deficit standing at seven per cent and has never been taken to task this irresponsibility that has now caught up with us.

Parliament’s failure to hold the Treasury accountable and allowed it to rake in debt at their discretion has given the impression that there is an accountability vacuum in the management and control of public debt. This is the backdrop of the proposed Bill by Nambale MP Sakwa Bunyasi.

There should be less concern about tightening the accountability structure in Parliament, an acquiesce to the Executive — a political problem we will face for a long time. This informs the creation of an independent office to strengthen accountability and shield the overwhelmed taxpayer. But the Bill has jumped the gun and gone a different tangent in its proposal. Reading the Bill, one struggles whether this will be an independent office.

First, is about the operations of the authority. Let me highlight the contentious clauses concerning operations of the independent office as proposed.

To start with, the authority is proposed to implement the government’s public debt management policy of minimising financing cost over the long term taking into account the risk. Then there is facilitating debt rescheduling and restructuring to comply with the public debt management policy as well as processing borrowing requests from public agencies and counties.

Another function is to issue public debt securities on behalf of national and county governments as well as transacting in derivative financial instruments.

Lastly, participating in talks with creditors and advising the minister on all borrowings.

These clauses simply propose that the authority takes some of the Treasury operations as one of the checks and balances designed on public debt, contradicting the fact that the authority is designed to be an independent office.

An independent office cannot undertake the same duties that it is meant to monitor and evaluate. What the Bill is proposing is analogous to giving the Auditor-General powers of exchequer release done by the Controller of Budget — looking at national government, counties and State agencies being compliant with the Public Finance Management Act before accessing public money — to tame abuse of public funds.

These duties should remain with the Treasury because budget-making is a political discussion. From the design of the Bill, we will have an authority controlled by the Executive and end up with the Treasury continuing to rake in public debt then pass the blame to the authority shielding itself from Parliament’s accountability and the government of the day from the political consequences of binging debt.

A better structure is to have the Treasury have those duties under the Public Debt Office then have an independent Public Debt Management Office that monitors, evaluate and audits public debt and have it report to Parliament. Simply put, the office should play an advisory role to Parliament and the public to make informed decisions about Kenya’s debt position. This structure is close to what IMF is pushing in emerging markets about having a Public Debt Office that keeps an open register of sovereign debt for scrutiny and accountability.