Start honest economy debate – Business Daily

Confidence in the future begins with honesty today. To this day, the narrative from the Treasury Department has been that our public debt levels are sustainable. Even when all signs were that public finances were in a deep red, the usual rule of thumb was that we didn’t have a serious debt problem.

It’s reality check time as the chickens come home to stay. Is it not the ivory top that the government finds it difficult to fulfill a basic obligation such as paying the salaries of civil servants?

The Treasury is unable to immediately release the share of the national revenue that should go to the provincial governments as provided by the Constitution.

The Higher Education Loans Board is facing collapse. Public universities are experiencing widespread financial distress. Indeed, there is a real danger that the country will descend into large-scale industrial disputes and strikes.

With the debt service bill for the fiscal year ending June 2023 now at Sh1.3 trillion, and in the context of a crippling shortfall in revenue and mounting expenditure, we are clearly faced with a debt overhang, and find ourselves in a position where we have to service. Debt by taking out more debt and paying interest on interest.

Even worse, we don’t have clean numbers and statistics to give the full picture of debt levels. Because of the outdated accounting system run by the government, we do not regularly revalue our foreign debt liabilities into shillings. We do not book unrealized losses on a real time basis.

It is difficult to obtain clear and comprehensive details about payments due on loan commitments, the level of outstanding bills in both national and provincial governments and contingent liabilities from obscure debts and external loan guarantees to parastatals.

The biggest elephant in the room is the outstanding bills accumulated by national and provincial governments.

Our problems are compounded by another fundamental dilemma. We have major credibility problems with regard to accurate numbers and statistics on the size of the fiscal deficit.

We start by exaggerating GDP growth forecasts and numbers which leads to exaggerated revenue projections and targets.

This is why we end up with a ludicrous and contradictory situation where on one side the Treasury finds the Treasury grumbling loudly about crippling shortfalls in revenue while the Kenya Revenue Authority touts 95 per cent performance on its revenue targets.

Exaggerated numbers and GDP forecasts lead us to unsustainable budget deficit targets and to spending plans, we are unable to finance.

What Parliament and the Treasury urgently need is a dose of honesty. When you agree to a budget with a huge gap of Sh800 billion, you must be prepared to face the consequences of excessive borrowing. Nobody lives beyond their means forever.

The most influential lesson we have to learn from recent activities and trends in treasury securities auctions is that honesty in numbers and statistics about the present breeds confidence in the future.

At the last auction we saw the market only subscribe for Sh3.5 billion while the supply was Sh20 billion. This, despite the fact that the government was accepting bids of up to 14 percent.

Obviously, the markets are only willing to lend to the government on a long-term basis because they are already factoring in a default or the possibility of forced cuts as Ghana did in December.

In plain terms, the markets are saying, “We’re not going to loan you 14 percent safer for 10 years. We’re loaning you eight percent safer for 90 days.”

But why would a rational investor want less for his savings? This is because it is believed that after 90 days, there may be forced haircuts or swapping ties. In November last year, we saw the Central Bank of Kenya (CBK) come out for impact in what has been rated as the second bond swap in the history of Kenya’s government securities market.

The first affected in June. For me, what was remarkable was the rare transparency and full disclosure by the Central Bank of Kuwait to the markets. ‘I have maturities due in January 2023 that I can’t afford to pay’.

We need an intense discussion about options to get out of the public debt problem and practical steps to revive the economy.

If you asked me about one of the biggest causes of our economic woes in the last 10 years, I would name weak and inadequate levels of corporate investment as the root cause of the paradox where we report relatively good GDP growth numbers when we can’t. Achieving revenue targets.

We’ve had unemployment growth.