I have read the handover note by former Treasury Cabinet Secretary Njuguna Ndung’u to his successor, John Mbadi, and this is my opinion.
First of all, I do not agree with his assessment of what Mr. Mbadi’s priorities should be in the current economic situation.
He glossed over the biggest elephant in the room- the public debt. Prof. Ndung’u should have made it clear to his successor that his top priority in the medium term is how to reduce the debt service to revenue ratio from the current level of 70 percent to a lower and sustainable level. Mbadi needs to figure out how to create greater fiscal headroom.
Of course, the outgoing minister admits that our debt levels are unsustainable. They need to go beyond diagnosis and beyond talking about Kenya’s economic situation in apocalyptic terms to offer suggested and realistic solutions.
He made the controversial claim that even though we are not liquid, everything is not so bad because – according to him – we are still solvent.
But the truth is that we only survive because we pay off debt with more debt.
The other day we borrowed $500 million from the World Bank to settle some of our maturing debts. Earlier, we borrowed another $1.5 billion in Eurobonds to meet other maturing obligations.
What’s the point of saying we’re still solvent when all we’ve done is avoid the wrath of our creditors by lending more to settle more debts?
Today, the language you hear from countries in a worse situation than ours such as Ghana and Ethiopia is ‘debt re-profiling’, ‘domestic debt swap’ ‘bond switch’ ‘haircut’ ‘domestic dollar bond issue’, etc.
Here the minister comes out talking about proposing a simple solution. He advised Mbadi to look to the Middle East and dump the West for solutions.
But when Saudi Arabia bailed out Egypt the other day, the first condition the Gulf States gave to Cairo was to sort itself out and get approval from the IMF- first.
We have talked about floating Sukuk bonds in the Middle East. We learned that under the Islamic financing regime, you must provide physical assets as security. We are told that we must first change our own laws.
The government has also talked about guaranteeing pandas in China. Samurai ties floating in the Japanese market are also called.
My sources at the Treasury who are working on this ‘go East’ strategy have whispered to me that the Asian market demands that we first join the Asian Development Bank before we can enter some of those markets.
It has also been whispered to me that the subscription fee for shares in this regional bank is really expensive.
I gather that even the regional banks – Trade Development Bank and Cairo-based Afreximbank- also want us to pay more in the share subscription before we can access the prohibitively expensive dollar loan they have arranged for us.
Clearly, Prof. Ndung’u has left without a credible solution to the problem of debt to his successor.
He also noted another important priority for the new Secretary of the Treasury Cabinet, namely the accounting reform and the proposal to transit the national government to an accrual accounting system attached to the double entry ledger and supported by a modern and powerful ERP.
The tool we call IFMIS that we use has failed miserably and is only for corruption. This is the lesson we learned from the infamous NYS scandal. The fact that IFMIS has been captured by the thieving elite also plays into the infamous corvid billionaire scandal.
Yes, Prof Ndung’u spoke about the government’s plans to link salaries to IFMIS and the KRA payment platform. This is just scratching the surface. IFMIS should now be removed.
As an experienced certified accountant, Mr. Mbadi is best placed to guide this important transition. In the anachronistic cash accounting system, used today, you only recognize transactions at the point of payment.
You pile up invoices and contractor claims that run for years and then you call yourself the nickname ‘deferred invoices’.
It is the reason for the successful administration to go through a ritual driven by corruption to choose the so-called ‘pending verification committee’ to examine the mountains of vouchers that have accumulated for years.
Here is the third elephant in the room for the finance minister in the current setting and economic context. Lack of adequate professional capacity in the Treasury.
In his presentation, Prof. Ndung’u said that the Treasury lacks 40 percent of professionals with critical skills.
The outgoing minister did not state what he had done to remedy the situation or offer a solution to his replacement. It should not be a reason to choose a foreign consultant.
The author is a former editor-in-chief of The EastAfrican.
