BUSINESS & FINANCE

‘Sinking fund’ set up to ease debt payments

Kenya has created a special fund to ease future cash flow pressures on government revenues arising from fast-maturing debts which are forecast to double to nearly Sh1 trillion in the next three years after expiry of grace period.

Treasury secretary Ukur Yatani has gazetted rules to set up and manage the “Sinking Fund” whose cash will, among others, be spent on paying off maturing debt, buy back bonds when interest is low and retire some of the debts earlier to avoid higher costs in future.

“The Fund shall be used to cushion for amortisation of liabilities arising from national government loans, redeem maturing …loans to alleviate rollover risks and facilitate debt restructuring and smoothening of maturity profile, ” read the Public Finance Management (Sinking Fund) Guidelines.

Debt redemptions are projected to jump from estimated Sh499.66 billion in the current financial year ending June to Sh608.90 billion next fiscal year, Sh715.67 billion in the one ending June 2023 and double to Sh990.69 billion in June 2024.

The rules empower director-general for public debt management at the Treasury Haron Sirima to “build up resources for meeting maturities of loans” from bilateral and multilateral lenders as well as bonds issued locally and internationally (Eurobonds).

Dr Sirima, the administrator of the fund by virtue of his office, has also been authorised to borrow and deposit into the fund cash equivalent to what has been budgeted for redemption of domestic and external debt as approved by Finance Cabinet Secretary.

Additional sources of cash include fees and commissions earned by debt management office, foreign exchange gains and income invested from the balances after settling redemptions due.

This is the second time that Kenya is creating such a fund after the one, set up in 1960s under the Internal Loans Act, remained dormant and its winding up is pending before the National Assembly.

“It provides flexibility to undertake debt management operations to lower cost and minimise risks in the public debt portfolio,” Dr Sirima told the Business Daily mid-February.

Public debt obligations have hitherto been paid from the Consolidated Fund Services which also caters for other obligatory and priority payments such as pension and salaries for some independent constitutional office holders.

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