Barely one week into office, the new cabinet secretary for Treasury and national planning Professor Ndung’u is already bringing in new strategies on debt management. Kenya has been struggling with a high debt repayment problem. It is estimated that over 62% of all revenues collected by the Taxman are used to pay debts. This situation with Debt management has become very untenable leaving very few resources are left for development.
The new Cabinet secretary has declared that he will tap into concessional loans in order to offset the domestic loans. concessional loans are considered cheaper than domestic loans. Over the past five years the government has grown an appetite for more domestic loans. This has caused a domino effect with most business lacking private financing. Banks consider the government a better debtor since it will never default. This affects the ability of banks to lend to private citizens.
With Domestic debt being more expensive, CS Ndung’u is seeking to tap into more concessional loans and use the same to offset the more expensive domestic loans.
“I’ve rightly been informed that you can actually do liability management and one of them is doing sustainability between the domestic debt which is very expensive and some form of concessional debt so that you reduce the amount of resources being spent on servicing the domestic debt,” Prof Ndung’u said.
Liability management refers to the process of balancing the use of assets and cash flows to minimise the risk of loss from not paying debt on time.
In his new proposal, the CS will be faced with a tough balancing act as the management model will likely curtail the release of the much-needed liquidity and runs the risk of edging out private sector players.
The current debt owed by the country is over 8 trillion shillings having grown four-fold in the last decade.