Our debt is sustainable and growth assured, says Rotich : The Standard

1. The common feeling is that Kenya is in a hole in as far as foreign debt is concerned, and that we are still digging instead of stopping and strategising on how to come out, your comment? Of course, this is not true. Our public debt is and remains sustainable. As at end December 2018, Kenya’s public debt in nominal terms was equivalent to 52 per cent of GDP of which half is foreign debt. The debt is 46 per cent of GDP in Net Present Value terms and within the statutory level of 50 per cent of GDP in NPV terms. The 2019 Budget Policy Statement and 2019 Medium Term Debt Strategy outlines the strategy for maintaining a sustainable debt position, which we refer to as fiscal consolidation. This includes measures to raise more revenues, containing public expenditures and managing public investments. I urge the general public to read these documents carefully and avoid being dissuaded by cynics who are spreading sentimental stories.   2. You came in as a saint in 2013, but in less than seven years you transformed into what some pundits call master of debts, what happened? I am sure you are aware that our track record of sound economic management has been recognised globally by ourdevelopment partners as well as other rating agencies, including the World Bank, the IMF, the World Economic Forum, as well as Standard and Poor’s and Fitch rating agencies. Our ability to attract more Foreign Direct Investment (FDI) is also another independent measure of our sound economic management. Borrowing has been a key part of ourstrategy to expand public investments in order to grow oureconomy, improve security, provide health and education and address other challenges, including climate change, and these have borne fruit.

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We have been doing this well aware of the need to maintain a sustainable debt position. My articulation of economic and financial policies to promote and sustain economic growth and development has therefore been consistent. The policies have been presented publicly through statutory reports, statements and presentations. Those who are holding the view of your question are not aware how the government has utilised its borrowed funds. They should spend time to visit the infrastructural projects completed or ongoing over the seven years. After that, I am sure they may call me an infrastructure champion instead! 3. Parallels have been drawn as to how 14 Finance ministers in 50 years moved Kenya’s total debt to Sh1.77 trillion but only took you five years to hit Sh3.4 trillion. How do you explain this? As indicated above, debt accumulation over the period under reference is explained by key flagship projects in energy and infrastructure sector that are enablers for private sector growth reflected by GDP growth rates that are above that of Sub-Sahara Africa. Instead of looking at debt indicators alone, it is important to note that we have also grown our economy substantially over the period – from about Sh4.7 trillion in 2013 to about Sh8 trillion in 2017. By the way, you should also ask yourself, in parallel, how the same 14 Finance Ministers over the span of 50 years were not able to build a single standard gauge rail, the number of kilometres of roads, and power supply and connection that we have done in such a short time.  4. Granted, the refinancing strategy has worked over the years but like someone said the other day, it is no answer to the predicament we are facing in the sense we continue being stuck in the hole rather than get out. Does this worry you? Debt re-financing is standard practice in many countries and is part of what we refer to as liability management. It is a key strategy in public debt management whose aim is to lower costs and risks of the debt portfolio. It’s the optimal strategy when revenues streams don’t cover expenditures while delivery of key government development programmes must be implemented to sustain economic growth. This doesn’t mean we are stuck in a hole but rather it should be viewed that as the economy grows, the capacity to service debt in the future increases concomitantly and at some point, we grow out of the debt.

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5. The vision one conjures up in the face of tough talk by the country’s top leadership on investment decisions is one where the Finance CS either has little say, is forced to toe the line or has to catch-up with decisions already made, hence the confusion we are seeing. What exactly is the situation? The role of the CS National Treasury is defined in the Constitution and the PFM Act. The decisions taken on public policy is through a collective and consultative process anchored on technical and professional input from a competent team drawn within and outside the public service.  6. But do you honestly feel that you have enough operational freedom to take firm decisions on the direction of oureconomy and on our spending or do you feel curtailed? I have never felt constrained from executing the role of CS National Treasury. When you see us defending the budget financial framework in Parliament, who also have review powers, you will know that we are firm on our decisions for the good of the country. 7. The country is splurging huge amounts of money against diminishing tax collections, spiraling debt, runaway corruption and little return for investment. Is it that this is not correct or the awareness of this situation has not reached or is not appreciated by Treasury?

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As a matter of fact, revenues have not been declining in recent years. We have seen revenues grow by as much as 10 per cent per year or more. However, when measured as a percentage of GDP, revenue has declined slightly over the period. Over the past three financial years due to exogenous factors like the General Election and subdued economic global growth, the rate of reduction in expenditures has been less effective due to the need to safeguard pro-growth and pro-poverty reduction programmes. Nevertheless, fiscal deficit has declined from a high of nine per cent in FY 2016/17 to 7.1 per cent in 2017/18. The 2019 BPS pronounces commitment to pursue a fiscal consolidation path to lower fiscal deficit to under 3.5 per cent of GDP in the medium term. 8. If you were to leave Treasury today, what would you sayyou are most proud of and what would be your biggest regret? This is a hypothetical question and therefore not necessary. Let us focus on pertinent issues that have a strong bearing on our economy. 9. Do you believe there is massive corruption in high levels of government, private sector and what should we do as a country in light of where we find ourselves in, a hole? In almost every country there is corruption. The strategy is how to achieve zero tolerance on corruption. As I said earlier, the government is tackling corruption in all fronts and we are making progress. The media should help by reporting incidents of corruption in an accurate manner, otherwise we will lose the fight because Kenyans will not know the truth.

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At the Treasury, we are contributing to the fight against corruption by eliminating the rent seeking opportunities in ourpublic financial management systems, including procurement chain. The automation of public financial management system is key to eliminate face to face interactions which could compromise PFM staff.

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GDPPublic DebtEconomyCS Henry RotichTreasury