Treasury sets up fund to collect money for loan payments

Kenya wants to put aside money to start the payment of her debts and stop the habit of borrowing from Peter to pay Paul.

Consequently, the National Treasury has gazetted a ‘sinking fund’ headed by head of the Public Debt Management Office, Dr Haron Sirma.

For a long time, Kenya has been kicking the can down the road – literally – borrowing fresh loans to pay up maturing ones thereby keeping the debt kept growing.

The policy became even more unsustainable as investors sensed a debt crisis and the new loans charged more interest than those maturing.

Enter the new debt management officer, who has been running a series of reforms at the Treasury and the trend is about to change.

A sinking fund allows money to be set aside, invested and when a debt matures it is paid off from the fund rather than going for a new loan.

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The gazette notice states that the fund will specifically cushion for amortization of liabilities arising from national government loans.

Redeeming maturing national government loans to alleviate roll over risks and facilitate debt restructuring and smoothening of maturity profile.

Build up resources for meeting maturities of loans and securities issued in the domestic and international capital markets and correct any mispricing along the yield curve.

Buy back of a national government loan in the debt market and meet the cost of switches and early redemption of government loan obligations.

This comes as Kenya inches close to making its biggest single ticket loan repayment when the ten-year $1.2 billion (Sh130 billion) Eurobond borrowed in 2014 becomes due in 2024.

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