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New strategy to ease debt distress laudable

New strategy to ease debt distress laudable
Debt representation. PHOTO/Print

Plans to ease debt distress and repayment struggles by establishing a Sinking Fund is a step in the right direction. This will entail setting aside money within a period of time, from which the government will pay its debt, to avoid piling pressure on other critical expenditures.

The pain of repaying a huge debt has been one of the major problems facing the Controller of Budget and the National Treasury and it is critical to pool money over time and use it when targeted debt instruments reach maturity.

Indeed, debt payment from the Consolidated Fund Services (CFS) which also covers other recurrent costs such as salaries and pensions has been draining public finances, a situation that has since left the Exchequer exposed and this needs to change. Going by the latest government data, as at December last year, public debt stood at Sh9.15 trillion, with external loans accounting for 51 per cent (Sh4.67 trillion). This, coupled with a weakening shilling the cost of repaying debt which is dollar-denominated primarily has made repayments even costlier.

Currently, the shilling is being exchanged at 129 per dollar, having weakened by close to Sh10 in the past year. For Treasury, payment of external public debt accounts for the biggest expenditure per single budget item in the CFS, standing at 88 per cent which is enough reason to seek better repayment plans. With such a high expenditure on loans, and as the Eurobonds nears maturity, clearly, such a fund would help ease pressure on the ordinary revenue collections but is also a good thing to be always prepared to pay loans.

The fund will help the country save money and avoid a large lump-sum payment at maturity. It will not only contain money to pay off debts but can also be used to assist in buying back bonds on the open market. This strategy adds an element of safety to the country’s debt profile and will also reduce the country’s risk to defaulting which increases trust from lenders and investors.

Low risks put the country in good standing which will help the country get cheaper loans. To even de-risk further, Treasury can even consider dollar-dominated accounts for the fund to ensure that Kenya is cushioned against a volatile dollar. This is an idea whose time has come, and many countries are setting up sinking funds to help deal with the challenges of debt sustainability globally, let us go for it.

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