Confidence sooner or later begins with honesty at the moment. Till the opposite day, the narrative from the Treasury was that our public debt ranges had been sustainable. Even when all of the proof was that public funds had been within the deep pink, the usual chorus was that we didn’t have a critical debt drawback.
It’s actuality examine time because the chickens come house to roost. Is it not the peak of ivory that the federal government is discovering it troublesome to satisfy a dedication as primary as paying civil servants?
The Treasury is unable to promptly launch the share of nationwide income that should go to county governments as stipulated by the Structure.
The Larger Schooling Loans Board faces collapse. Public universities are grappling with widespread monetary misery. Certainly, there’s a actual threat that the nation might plunge into widespread industrial disputes and strikes.
With the debt service invoice within the fiscal yr ending June 2023 now at Sh1.3 trillion, and within the context of crippling income shortfalls and rising expenditures, we’re clearly going through a debt snowball state of affairs, discovering ourselves in a state of affairs the place we’ve to service debt by taking extra debt and paying curiosity on curiosity.
Worse, we don’t have clear numbers and statistics to present the complete image of debt ranges. Due to the anachronistic accounting system the federal government runs, we do not commonly revalue our exterior debt obligations into shillings. We don’t guide unrealised losses on an actual time foundation.
Clear and complete particulars about excellent disbursements on mortgage commitments, the extent of pending payments at each the nationwide and county governments and contingent liabilities from murky money owed and exterior mortgage ensures to parastatals are onerous to come back by.
The most important elephant within the room is pending payments accrued by the nationwide and county governments.
Our issues are compounded by yet one more primary conundrum. We’ve main credibility points with the numbers and correct statistics on the scale of the fiscal deficit.
We begin by exaggerating GDP progress forecasts and numbers that result in exaggerated income forecasts and targets.
This is the reason we find yourself with the ironic and contradictory state of affairs the place you steadily discover the Treasury on the one hand whining loudly about crippling income shortfalls whereas the Kenya Income Authority is touting 95 p.c efficiency on its income targets.
Exaggerated GDP numbers and projections course us to unsustainable finances deficits targets and on to spending plans we’re incapable of funding.
What each Parliament and the Treasury want urgently is a dose of honesty. Whenever you approve a finances with a gaping gap of Sh800 billion, you should be ready to face the implications of extreme borrowing. None lives past their means endlessly.
Probably the most poignant lesson we should study from current actions and developments within the Treasury securities auctions is that honesty on numbers and statistics concerning the current begets confidence sooner or later.
In the newest public sale, we noticed the market subscribing solely to Sh3.5 billion when what was on provide was Sh20 billion. This, even though the federal government was accepting bids as excessive as 14 p.c.
Clearly, the markets are solely prepared to lend to the federal government on a long-term foundation as a result of they’re already factoring in a default or the probability of compelled haircuts within the picture of what Ghana did in December.
In plain phrases, the markets are saying: “We won’t lend to you at 14 p.c for 10 years. We’re safer lending to you at eight p.c for 90 days”.
However why would a rational investor need much less for his financial savings? It’s as a result of he believes that past 90 days, there could also be compelled haircuts or bond switches. In November final yr, we noticed the Central Financial institution of Kenya(CBK) popping out to impact what ranked because the second bond change within the historical past of the marketplace for authorities securities in Kenya.
The primary was affected in June. To me, what was exceptional was the uncommon transparency and full disclosure by the CBK to markets. ‘I’ve maturities coming due in January 2023 which I can’t pay’.
We want a grown-up dialogue on choices out of the general public debt drawback and the sensible steps to revive the financial system.
If you happen to requested me one of many greatest causes of our financial issues within the final ten years, I’d identify the subdued and insufficient ranges of company funding as the basis reason behind the paradox the place we publish comparatively good GDP progress numbers once we can’t meet income targets.
We’ve had jobless progress.