To prioritise BBI or sinking economy? The tough choices for CS Yatani

The former senate Deputy Speaker insists that the country is not in a constitutional crisis as alleged by Uhuru, saying it is just by a deception.

Kindiki told the Star that the current Constitution is the best “and all that it requires is truthful implementation to the fullest”.

“Kenya requires a convincing roadmap by this or the next Government on how to reverse the surge of mass poverty, inflation and unemployment.,” he said.

“The combined effects of many years of public sector corruption, bloated wage bill, an unsustainable public debt and now are about to set in, and it will take close to a decade of hard work, fidelity to the rule of law, prudence and fiscal discipline to ameliorate the negative impacts of these and other ills that bedevil us.” 

In September, data from the Kenya National Bureau of Statistics showed that about 1.72 million workers lost jobs when the country imposed coronavirus-induced lockdown that led to layoffs and pay cuts.

Uhuru’s administration is only Sh590 billion short of breaking the Sh9 trillion borrowing cap set by MPs in October last year.

The situation, experts say, portends a crisis in the next financial year with the projected budget deficit of Sh907 billion.

The long and short of this is that the government would not be able to fund Sh317 billion of its budget, hence risk affecting key projects.

Public debt, according to latest Treasury reports, stood at Sh8.41 trillion as of August 2020 against the ceiling of Sh9 trillion.

The stock of public debt accounts for Sh7.06 trillion – 69.2 per cent of gross domestic product, while there is an undisbursed debt of Sh1.35 trillion.

About 47 per cent of total government revenue – about Sh904.7 billion, has been set aside this fiscal year as debt servicing payments for domestic and external debts.

The situation is projected to turn for the worst next year, especially with Yatani’s recent pronouncement that some of the borrowings would be used for financing other debts.

Already, the public debt sustainability indicators – as per the medium-term debt management strategy, illustrate that Kenya faces a high risk of debt distress.

While before the National Assembly Finance committee recently, the CS said pandemic had wiped out revenue streams, leaving the government with no option but borrow.

“We borrow to support the budget because revenue is either limited or not there,” Yatani told the Homa Bay MP Gladys Wanga-led committee.

Abraham Rugo, executive director of International Budget Partnership – Kenya, when contacted by the Star on the situation, said the country is already in a crisis.

He said it was disappointing that no government official has made a call on reducing expenditure yet, adding that a return to the old tax regime would not be of any significance.

Rugo restated that there were no two ways about managing the deficit apart from increasing revenue and reducing expenditure.

In this regard, he holds that the best would be for the government to stop unnecessary construction projects, non-essential expenditure and new contracts.

“We cannot continue on an expanded expenditure framework. We are going to sink the country deeper into debt. Desperate times call for desperate measures but doesn’t mean you put your house on fire,” he said.

The expert warned that next year will be a harsh one if the government continues with spending at the current rate, add to the BBI and referendum expenditures.

“When you decide that your budget expenditure is higher with a deficit of almost a trillion and at the same time you are not assured of revenues coming out, that is a recipe for bigger trouble.”

Rugo added: “Everything that can go wrong with a fiscal plan is going wrong in our case. We hope for once the President and Parliament can rein in and say we cannot continue digging deeper.”

He said that an aggregate number was not the problem, but the discipline of government to live within its means.

“We hope the CS would be bold and say we will be in deep trouble if we continue in this trajectory.”

Treasury, to address this, says it will prepare a debt restructuring strategy covering commercial and bilateral creditors.

“This will ease fiscal pressure from expensive external commercial debt servicing and decrease issuance of short-dated domestic government paper to reduce refinancing risk and the public debt burden,” the CS said in the draft Post-Covid Economic Recovery Strategy.

He said the restructuring is envisaged to result in a lower cost of debt, reduce refinancing risk, and create space for borrowing without undermining fiscal sustainability.

Treasury thus seeks to identify potential debt in the portfolio that needs to be restructured and negotiate with creditors and potential lenders.

Yatani also seeks to put in place modalities for reducing the stock of Treasury bills and increase issuance of longer-dated bonds to achieve average maturity time of seven years.

Also in the works is to operationalise the Sinking Fund for the purposes of redemption of public debt by February 2021 and issuance of sovereign green bonds.

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