The Public Debt and Privatization Committee chaired by Hon. Abdi Shurie (Balambala) on Thursday 9^th March, 2023 tabled a Report on Medium-Term Debt Management Strategy (MTDS) in the National Assembly. The Report provides strategies and initiatives to be undertaken by the National Treasury in financial year 2023/24, to meet fiscal deficits for the period between 2023 to 2026, as proposed in the 2023 Budget Policy Statement.

The report which is up for debate this Tuesday, was developed after the Committee held deliberations with different stakeholders including the Controller of Budget, the Auditor-General, the Governor of the Central Bank of Kenya and the National Treasury. It sets a fiscal deficit target for the medium term at 4.4% of GDP for FY 2023/24, 3.9% of GDP for FY 2024/25 and 3.6% of GDP for FY 2025/26, in line with the fiscal consolidation path.

In addition, the Report provides policy and financial recommendations to be undertaken by the National Treasury in FY 2023/24, to ensure that public debt remains sustainable while minimizing costs and risks of borrowing. In the Report, the Committee recommends that any deviation from approved borrowing strategy to be approved by the National Assembly.

Amongst the recommendations are that; the National Treasury integrating Ministries, Departments and Agencies into a single treasury account system and establishing a sinking fund dedicated to public debt servicing within the next 6 months, and adopting a hedging mechanism on foreign exchange risks and/or negotiating lending agreements in Kenya shillings.

Further, the report recommends that the National Treasury undertakes a review of all undisbursed loans amounting to Ksh1.179 trillion and submits to the National Assembly within 1 month, a report with information on terms, status, reasons for non-disbursement and proposals on any loans that can be cancelled to save spending on commitment fees.

Also, in adherence to the Accra Agenda for Action 2018, donor support must be aligned to the country’s budget cycle to facilitate proper planning by the implementing agencies thereby reducing undisbursed loans. The National Treasury will also be required to submit to the House a strategy for resolution of non-performing loans linked to various state-owned enterprises including Kenya Airways.

The office of the Auditor General is required to expedite audit of project loans under the water sector and a Ksh9.9 billion loan borrowed on behalf of KPLC and submit the report to the House within the next 2 months.

Other recommendations include; public participation on MTDS and Treasury undertaking a sensitivity analysis on the 2023 MTDS, and submitting to the House a contingency plan on measures to be undertaken in the event of revenue shortfalls or underperformance of loans.

The MTDS has considered four alternative funding strategies taking into account inherent costs and risks of the existing public debt portfolio. The report proposes a balanced domestic-external financing strategy which envisages 50% net domestic borrowing and 50% net external borrowing, maximizing concessional and semi-concessional borrowing while rolling over commercial debt from external sources, lengthening maturity and deepening domestic markets through issuance of medium to long term debt securities under the benchmark bond programme and finally the MTDS provides that changes in global economic and market conditions may necessitate deviation from the optimal strategy.

If approved by the House, the 2023 MTDS is expected to inform the country’s borrowing strategy in the coming financial year and over the medium term.