Kenya: Bill Seeks to Restrict Foreign Loans By Kenyan Government

President Uhuru Kenyatta (left) greets Chinese President Xi Jinping at the Great Hall of the People in Beijing on April 25, 2019 ahead of the second Belt and Road Forum for International Cooperation.

Nairobi — The Parliamentary Budget Office says a Bill seeking to compel the government to seek parliamentary approval before entering into any loan will allow MPs room to control public debt which is spiralling out of control.

PBO Director Martin Masinde says the amendment to the Public Finance Management Act seeking to cap the public debt to a nominal amount of Sh6 trillion will be in line with regional trends where there are no increased or reduced costs of borrowing in the medium term because fiscal balance is not surpassed.

In their submission to the National Assembly Budget and Appropriations Committee, the PBO cautioned that four key public institutions used as guarantees are at risk of losing their assets if the government defaults on servicing outstanding government guarantees worth a total of Sh147.7 billion as at December 2018 that had been provided to eight institutions which increased from Sh133.79 billion from December 2017.

According to a schedule provided to the Committee concerns were expressed on the fate of Kenya Power whose outstanding government guarantees stands Sh14 billion as at December 2018, KenGen's outstanding government guarantee stands at Sh10.8bn as at December 2018 from Sh25.9bn in December 2017, the outstanding government guarantee of the Kenya Railways (IDA concessionaire) stood at Sh4.5 billion in December 2018 from Sh4.1bn in December 2017, Kenya Ports Authority outstanding government guarantees stood at Sh23.7bn in 2017 but rose to Sh33.6bn in 2018 while the outstanding government guarantees in Kenya Airways stood at Sh77.4 billion in December 2017 and fell marginally to Sh76.3bn in December 2018.

"National debt of stock also comprises debt guarantees under Article 213 of the Constitution and Section 58 of the PFM Act 2012. These form part of fiscal contingent liability i.e. if an institution fails make payments for a guaranteed loan it necessitates the government to step in and shoulder the extra-burden by use already limited financial resources," read the PBO presentation.

The House economy advisory team noted that the status of the Kenya Broadcasting Corporation (KBC), Tana and Athi River Development Authority (TARDA), East African Portland Cement (EAPC) outstanding government guarantees totalling to Sh2.5bn in December 2017 and Sh8.1bn in December 2018 have been declared as being non-performing.

Emgwen MP Alexander Kosgey who is the sponsor of the Bill said Kenya's public debt hit the Sh5 trillion mark, triggering caution from international credit agencies over its sustainability.

"We have a problem now where the borrowing is taking place and there is no indication of what is their intended repayment plan; like the current SGR the existing phase from Mombasa to Nairobi up to the extension to Mombasa is currently making a loss each month."

Kosgey added: "So the issues was when you do borrow... ; do you have a plan saying that you will raise so much revenue and that revenue will be used to pay so much debt? Has the proposed extension of this SGR been well-thought out and plan how this will happen? We have to ask them to give us a clear repayment plan so that whatever that plan is, we are all aware of it, we can internalize it and then be able to move forward and borrow."

The second-term MP argues that the National Treasury has already exceeded the 50 per cent of GDP in its current public debt limit which stands at 57 per cent.

"Right now the Treasury is in breach of the law, because the figure that the law should be at is 50 per cent. What they have by any calculation is already above 50 per cent; we should already act on this thing." Kosgey continued, "my thought is it easier for anybody to monitor a figure, if it is a global figure it is easier to see it and to be able to edit it if need be as opposed to having a percentage."

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