The shame of Kenya’s monster appetite for loans
In personal finance, hardly would you opt for a mobile loan to clear your outstanding bank facility.
As a matter of fact, one would most likely go for a longer tenured bank loan to clear the nuisance of short-term, digital loans and give yourself some breathing space.
While this may appear as pretty obvious, common sense is not as common if the revelations of the Office of Controller of Budget (COB) on Thursday is anything to go by.
In a dossier to the Senate Standing Committee on Finance and Budget, the COB revealed that the National Treasury has gone for domestic loans to clear external loans.
This move is not only a violation of the provision of the Public Finance Management Act (PFMA) which limits the national government borrowings to development expenditure but also an unnecessary and expensive option.
During the session, the COB disclosed two instances of the irregularity including a recent re-allocation of Treasury bond proceeds to the repayment of syndicated loans.
The practice fingers the conduct of the National Treasury where the Cabinet Secretary Ukur Yatani has consistently denied the use of debt proceeds to settle existing credit lines.
It should, however, be noted that this denial is a mere public stunt as perfected by not only Mr Yatani but his predecessors in that office, too.
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Traditionally, Kenya has hardly redeemed its debt obligations only taking new loans to net off the maturing facilities.
In essence, Kenya pays for interest on debt through internally mobilised revenues but opts for new credit lines to retire the principal amounts of her external loans while also deploying debt roll-overs to cover local obligations.
Back to the cost of funding. Domestic borrowing is an expensive affair. Take for instance the published yields on Treasury bills and bonds. A 10-year paper will, for instance, set the government back more than 12 per cent in interest cost.
Contrast this to external borrowing, when done concessionary to include sources such as the World Bank, a 30-year line of credit would barely cost two per cent in interest while even the dreaded Eurobond is downright cheaper when put side by side with a local paper.
As such, borrowing domestically to pay up external loans is a cardinal sin by the exchequer.
Domestic borrowing is, however, a backdoor for the Treasury to meet is funding requirements.
A deep-dive into the Treasury statement will consistently reveal an unexplained uptick in local debt instruments particularly at the tail end of fiscal years.
As local borrowing does not attract scrutiny or the same level of uproar that meets external loans, the exchequer has found it ‘easy and safer’ to bet big with local credit to cover its deficits than risk a fall out from contracting foreign debt.
The charges against the Treasury have not stopped at borrowing from Peter to pay Paul.
The COB has also revealed a Kes1.7 billion loan booking fees bill for facilities agreed upon between creditors and GOK but which stand un-utilized.
The ridiculous bill is largely a factor of government signing on loan agreements before making sound plans on the roll out of the projects attached to particular credit lines.
From Thursday’s revelations, it is clear that we need to take a hard look at the Treasury’s conduct as guided by the PFMA.
At the same time, the National Assembly should wake up from slumber and do its job of oversighting the exchequer just as it should when Kenyans take up arms lamenting runaway fuel prices, which is simply a factor of heavy taxation.
