ICPAK calls for prudent management of public debt’s strategy.

 The Office of Institute of Certified Public Accountants in Kenya{ICPAK} new office in Kisumu for Nyanza Branch.ICPAK has urged the Government to prudently manage the public debt’s strategy-Photo from ICPAK Facebook page.

By Dickson Odhiambo.

March 19, 2018.

ICPAK calls for prudent management of public debt’s strategy.

THE Institute of Certified Public Accountants in Kenya has urged the Government to prudently manage the public debt’s strategy.

ICPAK Chairman Julius Mwatu says the prevailing debt statistics point to a need to re-look at the country’s debt strategy.

Speaking in Kisumu, the ICPAK chairman said whilst the public underscore the significance of debt in public financial management they must observe prudence in the country’s debt management strategy.

He says the Institute is of the opinion that the country must strive to negotiate debt at concessionary terms covering both the cost and tenure of resulting debt.

Mwatu says on average, the debt tenure of public loan stock in Kenya is between fifteen and twenty years whereas optimality is achieved at longer loan tenures.

“For example, Japan is the world most indebted country with debt to GDP of 249 per cent implying that Japan owes twice the size of its economy yet debt sustainability is seldom an issue,” he says.

He says the strategy adopted by Japan is negotiating longer tenure loans with very low rates, adding that the trick is to work on the countries credit standing by focusing on investing on key sectors that stimulate economic activity.

The Institute has further urged the government to keep an eye on the red flags and warning indicators to ensure that the country is not caught-up in a debt crisis in the near future.

“Consequently, we urge the government to keep an eye on the red flags and warning indicators to ensure that the country is not caught-up in a debt crisis in the near future,” he adds.

The Country’s overall public debt as at December 2017 stood at KShs. 4.573 Trillion. This comprises of KShs. 2.22 trillion of domestic debt and KShs. 2.353 of external debt. 

In Budget Policy Statement 2018, the National Treasury is proposing that out of the KShs 1.68 trillion that is budgeted as ordinary revenue in the FY 2018/19, KShs 688 billion shall be applied to service existing public debt. 

This translates to forty percent (40%) of ordinary revenues going into debt servicing. By the very spending intentions of government in the FY 2018/19, it is observed the overall spending deficit shall stand at 7.2% of GDP, which Treasury proposes to plug through additional borrowing further exacerbating the public debt problem.

In comparative terms, it can be demonstrated that the rate at which the economy is accumulating public debt is higher than the rate of growth of the economy.

This Points to a mismatch between the fiscal policy and the broader economic policy a situation which should be evaluated critically to assess the sustainability levels of public debt.

The Institute at the same time welcomes the recent talks between His Excellency President Uhuru Kenyatta and the Right Hon. Raila Odinga.

It Chairman Julius Mwatu says its outcome is meant to champion unity and cohesiveness among the various communities.

“The stand-off arising from the 2017 acrimonious election indeed created anxiety resulting in a slump in economic activity in the last two quarters evidenced from the figures recently issued by the Kenya Revenue Authority,” he further says.

He says the Institute now calls upon the public, professionals and all leaders to support this initiative for the nation to achieve prosperity and stability, adding that it strongly  believe that this is the right step in providing an enabling environment for all stakeholders in the country to play their role towards achieving Vision 2030.

 “Going forward, the dilemma that befalls the nation every electioneering cycle must now be addressed in a candid, amicable, open and transparent manner through continuous dialogue by all. This national dialogue should be embraced at all spheres of the society starting from the village, the Ward, inter and intra counties to the national level. Time is now ripe for the call to nationhood,”the chairman further adds.

The chair says the Institute also takes note of the Government’s Big Four agenda on manufacturing; food security and improved nutrition; universal health coverage and; affordable housing for all Kenyans.

“This Agenda is indeed in sync with the priorities deemed appropriate to meet the pressing needs of the people of Kenya. We however take note that unless the governance challenges experienced before are addressed, actualization of the “Big Four” Agenda, may suffer the same fate as other similar programs rolled out in the past,” he concludes.

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