Why has the government increased the public debt ceiling by Sh3 trillion? What is the magic around this number? I found myself scratching my head for answers.
Yet if you track the level of the fiscal deficit in the past five years or so, you will discover that the government has been running a budget deficit at an average of Sh600 billion every year.
Multiply that number by five years and you can see how your magic number of Sh3 trillion upward adjustment came about.
Add this number to the current public debt ceiling level and you have the new ceiling of around Sh9 trillion. The assumption is that the budget deficit level will be maintained at the average Sh600 billion for the next six years.
The intellectual dishonesty displayed by the National Treasury when it comes to debt is mind-boggling.
Until the other day, the narrative from the Treasury was that our public debt levels were sustainable. Even when all the evidence was that public finances were in the deep red, the standard refrain was that we did not have a debt problem.
The reality check time came in June, when they started admitting that they had all along been living a lie and it emerged that the country had breached debt ceilings.
The narrative that our debts were still sustainable could no longer hold.
With the make-believe narrative about how debt levels were sustainable having run out of tarmac, it was time to make an about-turn and seek parliamentary approval for an upward adjustment to the ceilings.
You can’t insist that your debt levels are sustainable in one breadth and in the next minute publicly admit that you have broken limits and ceilings stipulated by your own laws.
Looked at more closely, what the Treasury was dealing with was, basically, a compliance issue. Parliamentary approval was needed to bring public debt levels in line with what is stipulated in the law; namely, the Public Management Finance Act.
Accuse me of being a pessimist if you like but I predict that we will exhaust the new Sh9 trillion ceiling in less than two years.
If anything, we are yet to see clean numbers giving us the full picture of debt levels, especially details such as outstanding disbursements on existing loan commitments, the level of pending bills at both the national and county governments and contingent liabilities from murky debts and external loan guarantees to parastatals.
The biggest elephant in the room is pending bills accumulated by the national and county governments. Sectors such as the roads department accumulated massive pending bills in their books.
What is my point? It is that we still have major credibility issues with the numbers on debts and the size of the fiscal deficit. It’s like we have yet to appreciate the fact that part of the Greek debt crisis came about because of the credibility of the macroeconomic figures.
Exaggerated GDP growth numbers will lead you to exaggerated revenue targets that lead you to unsustainable budget deficits and on to spending plans that you are incapable of funding.
What both Parliament and the Treasury need urgently is a dose of honesty.
When you approve a budget with a gaping hole of Sh635 billion, as Parliament did in the current financial year, you must be prepared to face the consequences of excessive borrowing. No one can live beyond their means forever.
Our problem is that we have MPs who will approve massive budget deficits only to make an about-turn in the middle of implementation to start whining about rising public debt levels. MPs will tinker with the Finance Bill and remove proposed tax measures as if unaware that what they are doing has implications for the size of the whole on the books of the government.
I don’t see this financial year ending without the Treasury going back to the international credit markets to make substantial commercial borrowings — a Eurobond, syndicated loans or even a diaspora bond. When you look at the budget for this financial year, is it not clear new commercial borrowings are provided for in the budget?
Here is food for thought. Before 2013, most of the money we borrowed came from multilateral lenders such as the World Bank, African Development Bank and European Investment Bank.
Today, most of our debt is commercial borrowing, including syndicated loans that are negotiated opaquely in smoke-filled rooms.
Multilateral loans are far much cheaper in terms of interest, grace periods and repayment terms. But we prefer commercial loans because they open better opportunities for rent-seeking. There is a direct relationship between the spike of commercial borrowing and corruption.