Treasury insincere in its bid to increase borrowing

Amb.Ukur Yatani, Cabinet Secretary National Treasury and Ministry of Planning speaking during the launch of the 2021 Economic Survey Report. [Wilberforce Okwiri, Standard]

One of the blemishes on President Uhuru Kenyatta’s legacy is a huge mountain of debt that has led to a heavy tax burden on Kenyans. Now, just when consensus is building up for the next government to bring down the debt levels, National Treasury Cabinet Secretary Ukur Yatani is plotting to create a window for it to borrow more.   

Through proposed changes to the Finance Act, the National Treasury is essentially plotting to bypass MPs in its borrowing plans, a move that will see it overshoot the borrowing limit and give explanations later. MPs, who are the representatives of the people that are supposed to play an oversight role, will be left the role of rubber-stamping borrowing decisions already made by the government.

With the proposed changes, the country will abandon the Sh9 trillion debt ceiling and adopt an anchor of 55 per cent of Gross Domestic Product (GDP) in net present value (NPV) terms in what Treasury insists is international best practice. As opposed to the current case where Treasury is barred from exceeding the Sh9 trillion debt ceiling, the Exchequer might have the window to borrow more as long as it gives Parliament a plausible explanation.

But this explanation will be offered after the Treasury had long borrowed. We know what happened when we had such arrangement with the country’s public debt pegged at 50 per cent of GDP, in net present values.  

NPV basically means discounting for the current value of money. This means a load might actually be lighter than it appears if you consider future conditions such as low interest rate. Unfortunately, calculating NPV is too complex even for the lawmakers. Only Treasury mandarins tend to understand how they calculate NPV.

When debt was captured as a fraction of GDP, the government took advantage of the confusion of lawmakers to go on a borrowing spree. That has since translated into a heavy tax burden to Kenyans in the form of increased interest payments.

By the time President Uhuru Kenyatta leaves office, for every Sh100 that will have been collected in taxes, Sh32 will be used to repay interest. That is a significant growth compared to Sh16 that President Kenyatta used in his last budget in June 2013.

This money that is being pumped into interest payments would have been used to provide critical services such as healthcare, education and security to the public.

Granted, most of the borrowed money was used to build railways, roads, bridges, ports. However, some of these projects have not grown the economy faster as anticipated. As a result, the country has been struggling to repay these debts.

Moreover, the time of these changes, coming just when the country is headed for an election, is suspect.

By end of 2021, Kenya’s public debt stood at Sh8.2 trillion, just Sh800 billion shy of the legal ceiling.

If passed, the regulations will give President Kenyatta’s government – and particularly the next – more leg room to continue the binge borrowing that started around nine years ago.