A new policy that moves the role of borrowing from control of the Treasury Cabinet Secretary to the Public Debt Management Office (PDMO) will come into force next month.
The 2012 Public Finance Management Act is seeking to introduce an independent director to be competitively selected by the Public Service Commission rather than appointed by the Cabinet Secretary to manage the day to day operations of the office.
While the office will still operate from the Treasury, the law envisions an independent office with far-reaching powers in raising funds through borrowing to finance budget deficit, managing debt at minimum cost and risk as well as being accountable for debt management operations.
“PDMO was established, but had no policy document to guide its operations. The policy seeks to strengthen PDMO role in public debt management. It will be submitted to Cabinet by end of January and come into force seven days after approval,” said current Public Debt Management Office director-general Haron Sirima.
The former central bank deputy governor appointed to the office in June 2018 said the new policy that calls for more transparency in debt management will be in accordance with best practices — more disclosures, reporting and subjected to periodic audit of its operations.
It seeks better coordination between monetary, fiscal and debt policy to ensure none undermines each other.
The Cabinet Secretary’s job will be to ensure that the PDMO has the resources to perform its functions effectively as required by the Public Finance Management Act rather than drive the borrowing agenda.
The Treasury wants to move away from the current practice where the all-powerful Cabinet Secretary draws the budget, sets borrowing targets and approaches lenders, which has catapulted Kenya’s borrowing and exposed taxpayers to expensive commercial loans.
Since the new debt team came into office, they have rejected overtures to procure commercial debt especially the short-term syndicated loans that had been prevalent under former Cabinet Secretary Henry Rotich and are instead pursuing concessional arrangement like the World Bank loan.
They want loans at three percent yet banks are pushing syndicated loans upwards of seven percent and have shut the door to any talks.
In 2010 only four percent of external debt was commercial, 30 percent bilateral and 66 percent borrowed from multilateral sources.
But by 2019 commercial debt was 37 percent, bilateral 33 percent and multilateral 30 percent.