Mbadi sends mixed signals on the economy amid rising debt concerns

This past week, the Cabinet Secretary for National Treasury was caught publicly warning key stakeholders on the high external debt risks that the country is facing. This is due to an estimated $6.2 billion external debt obligations with maturities between February 2028 and February 2036.

This is despite the CS expressing exuberant confidence over significant economic gains that he has achieved over the past eight months of assuming the reins of power at treasury. Given, the CS appears to be the least media shy chief of Treasury in recent history. He has not missed any chance to face the nation to explain his agenda and the challenges he is facing at Treasury through various mainstream media platforms.

To give credit to him, his frequent public engagements seems to bring a sense of openness and transparency that is contemplated under Article 201(a), against perceived opaqueness in the conduct of business at the National Treasury. That notwithstanding, there is a valid risk that the CS maybe sending mixed signals to the markets and key stakeholders. This is especially so when the message is not consistent or seems to conflict on different elements among the macroeconomic indicators.

For instance, if it is indeed true that there are significant economics gains happening across various sectors of the economy, such gains would consequentially boost government revenues, expand the economy to ease the debt to Gross Domestic Product (GDP) ratio and avail cashflows to repay maturing debts. Yet, this does not seem to be the message that the CS was conveying in his comments this past week in comparative to his other recent media appearances.

Across all economies, Treasury chiefs are often guarded on what they say in public given their insider roles within the economy. Unlike other ordinary mortals, Treasury bosses are treated as insiders with superior information on both the short and medium terms by the financial markets and analysts.

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The CS in-charge of the Treasury wields the final executive powers on matters to do with policy and administration of public resources.

Thus, when the CS expresses an opinion on a matter both within official and informal forums, the general understanding is that they speak from a point of privileged information. In the real world of economics, such information passes as insider information that is used to make investment and trading decisions in the market place.

Interestingly, the Medium Debt Management Strategy (MDMS) for the fiscal plan period 2025 -2028 that must accompany the economic plan each year does not portray such a scary picture on the debt problem. From a policy point of view, the MDMS provides a non-partisan and apolitical analysis of public debt to inform fiscal measures proposed under the Budget Policy Statement (BPS) and the accompanying budget estimates.

According to the 2025 draft MDMS submitted to Parliament, the public and publicly guaranteed debt stock stood at Sh10.58 trillion as at June 2024. This constitutes of external and internal debts of Sh5.17 and Sh5.41 trillion.

The debt strategy paper references an October 2024 Debt Sustainability Analysis (DSA) report that established the public debt in the country to be sustainable, but with a high risk of debt distress. From the DSA report, the present value (current shilling equivalent value of the debt) was 63 per cent of GDP, significantly above the approved threshold value of 55 per cent of the GDP. The National Assembly is mandated to regularly set the debt threshold value and has allowed the Treasury up to November 1, 2028, to bring the public debt to within this approved threshold.

Within the plan period, the debt strategy targets that the government shall borrow any additional debts at the ratio of 25:75 per cent from external and domestic sources respectively. The medium debt plan objectives are to reduce refinancing risks, reduce interest rate risks, reduce foreign exchange risks and promote intergenerational equity (as contemplated in the Constitution) in the use of public debt.

Going back to the CS comments on the external debt, the MDMS indicates that the existing external debt portfolio is distributed at 53.9, 21.1, 16.5 and 6.3 per cent among multilateral, bilateral, Eurobonds and commercial debts respectively. 1.9 per cent is from supplier credits and the rest from other sources.

From the foregoing data as presented by the Public Debt Management Office (PDMO), which is a department within the National Treasury, the lingering question is: Was the CS blowing hot hair unnecessarily?

To answer this question, we shall need to look at the proposed strategic interventions to improve debt management and the challenges faced as listed by the PDMO. In the plan period, the debt office targets to reduce the stock of treasury bills, lengthen the maturity of public debt instruments, deepen and undertake reforms in the domestic debt market.

Implicitly, this would ease pressure on maturing short-term debt obligations, expand debt sources and buy time for the Treasury to re-balance the debt to revenue ratio that is reported as way off the healthy ratio.

It is however in the challenges to debt management that the PDMO has listed where the devil seems to lie. Three of the challenges stand-out. First is the recent down grade of the country’s credit rating by all the main credit rating agencies internationally.

As a consequence, the country can only access funding from international markets at high costs to debt, stricter rules and potentially at unfavourable conditionalities to healthy macroeconomic economic recovery. CS Mbadi alluded to this harmful conditionalities to economic recovery from the debt instruments being offered by the multilateral lenders on one of his media appearance this past two weeks.

The second challenge highlighted by the debt office is that the law does not provide the department with sufficient autonomy to manage public debts. This leaves the debt management function open for abuse by senior political and bureaucratic elites both within the executive and legislature. This is related to another legal challenge that allows for duplicity under the Central bank Act and the Public Finance Management Act.

According to the debt office, this overlap in the two laws tilts the scales in favour of the Central Bank when it comes to policy and management of public debt, without corresponding adequate accountability measures. Reflecting on this, it is actually not clear who wields the final say on matters public borrowing between the Treasury and the Central Bank in the courts of public opinion. Occasionally, the two have contradicted and criticised each other publicly on key policy issues.

The third challenge that I wish to highlight here is the observation by the debt office that there is evidentially limited understanding on public debt management among major stakeholders. According to the PDMO, public debt management has both technical and complex political interest that may not necessarily rhyme.

This seems to be a silent missile directed at senior political leaders at both the executive and legislature. The general publics are not spared in this indictment either.

From several official data sources, debt appears to be handled as a past-time venture whether in government, business or at household levels. We seem to have become a ‘fuliza’ republic without any consideration of responsible application to debt.

Reflecting deeply on Mbadi’s fears on the debt, one cannot fail to wonder where all the borrowed funds went to, if they are not within the economic system to service the maturing obligations?