GBR Team 23/12/2020
A new Authority is set to take over the role of issuing government debt paper from the Central Bank of Kenya, and the National Treasury.
This even as concerted pushback by interested parties emerges to thwart the move.
The Public Debt Management Authority (PDMA), described in a parliamentary Bill, will be in charge of issuing all public debt on behalf of both National and County governments including international loans.
The Central Bank of Kenya, which acts as the issuing agent for Treasury Bills and Bonds, is set to lose Sh3billion (US$30m) annually in agency fees, when this role is ceded to the PDMA.
Staff at the National Treasury are said to be already preparing to move to the PDMA once it is up and running saying the money saved from paying fees to CBK will be sufficient to run the Authority.
Treasury will also surrender its mandate of floating international debt to the new Authority.
Besides, preparing and implementing the national government’s borrowing plan and servicing of outstanding public debts, the Authority will:
“On an agency basis, issue government public debt securities on behalf of the national and county governments,” reads the Bill.
The Authority will also keep a register of all national and county government loans as well as those of their entities and any other debts guaranteed by government.
Currently, public debt is said to stand at Sh7.2trillion with the figure growing every day.
The Authority is thus supposed to come up with a debt management strategy, a role that is currently played by the Debt Management Office, and also a plan for rescheduling and restructuring this debt in line with the policy.
Fears have been expressed about possible defaults by African governments on sovereign debt with talks of rescheduling or restructuring such debts now ongoing.
The Bill underwent the first reading in the National Assembly yesterday and is set to go through public participation.
Even at this early stage, the establishment of the new Authority is already facing mounting resistance.
CBK does not comment on its principal-agent (Treasury-CBK) matters, but sources indicate stiff resistance, both at the bank, as well as at The Treasury, to the proposal to cede its debt issuance role.
A banker close to the top management at Treasury expressed the contrary thinking by some on Harambee Avenue (National Treasury Headquarters).
“Let’s start with why independent DMOs (Debt Management Offices) are housed within the Treasury,” he said. “Debt management and cash management go hand in hand. They will now take away CBK’s domestic role and Treasury’s foreign role and create an entity.”
As a result, he added, monetary policy and cash management will be hampered.
“We don’t need a new Authority. Just implement the current PFM (Public Finance Management) laws. In fact, having the Authority is a bad idea.”
But supporters of the creation of the PDMA told GBR that the new structure was more efficient as all public debt would be managed under one body. This includes foreign and domestic debt, loans guaranteed by the government, as well as future County government debts.
“We pay them (CBK) Sh3billion a year just to sell these Bills and Bonds,” a Treasury insider who declined to be named said. “That will be more than enough to run the Authority”
CBK, he added, will be left with clearly identifiable KPIs (Key Performance Indicators) on their monetary policy and price stability roles.
“They have been hiding behind raising of debt (Bonds and Bills) and saying it shows their performance,” he added.
Officials at the current Debt Management Office did not wish to speak to the matter deferring to the Cabinet Secretary. However, one of them noted that while the PDMA may improve efficiency in debt management operations, it will not be able to enforce prudent spending.
DMO officials are said to be frustrated by senior Treasury officials who keep adding new expenditures to the budget despite the current heavy debt burden that the country is dealing with.
The PDMA Bill is now set to proceed for public participation where interested parties may give their contribution.
It is not clear if CBK will give its input at this stage.