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Kenya's Efforts to Manage Debt Burden Crisis


Date Posted: 9/15/2013 11:47:53 AM

Posted By: misscohen  Membership Level: Silver  Total Points: 682

The government has put up various measures to manage debt crisis in the country;

i) Debt relief initiatives:
• Kenya had rescheduled arrears and debt flows amounting to US $ 650 million under the Paris club in 2000 and 2004. It received 50% debt relief in present value terms.
• China, Finland and Netherlands cancelled a debt amounting to US$ 30 million instead of rescheduling the debt under the Paris club.
• The government is involved with negotiations with the government of Italy for deeper debt relief through debt for development swap. This will lead to cancellation of US$ 43 million of Paris club rescheduled official development assistance (ODA) debt. This is on condition that the funds will be channeled to poverty alleviation programs. The debt for development swap framework is a vital tool upon which the government intends to finance millennium development goals.
• The government is cautious not to ask for debt relief up to 67% since it will worsen country’s credit risk rating and some creditors may refuse to offer new loans.

ii) Intense audit and investigations
The government conducts special audits following the Anglo leasing scandal in 2004 to avoid any further mismanagement of public funds, which are majorly obtained through debt financing.

iii) Other measures taken to ensure the government does not finance a nonexistent loan include strengthening the debt management department (DMD) at the ministry of Finance to manage public debt. It will be guided by secondary regulations and National debt strategy. In 2005/06 the debt management department (DMD), was strengthened in the following ways:

• Enactment of the public procurement and disposal act 2005. The act outlines procedures for security type procurement. The procurements will be audited externally.
• The financial management reform and legal sector technical assistance program implemented by the government will strengthen the overall financial management

in the public sector.
• Replacement of old system with a new system at the back office of the DMD
CS-DRMS 2000+ system replaced old version CS-DRMS (version 7.2). 50 members of staff from CBK were trained.
• Installation of fiber optic connection between Treasury and CBK to facilitate sharing of information.
• Reorganization of functional workstations with modern equipment.
• Dissemination of debt information on timely basis and focusing on timely and accurate public debt settlement.
• Plans to strengthen middle office operations are underway. Training of staff effectively to carry out detailed analytical work is in the plan.

iv) The enactment of the Public Finance Management act (PFM) 2012, which provides a number of reforms with respect to management and control of public finance including public borrowing.

v) Central bank and the ministry of finance have put in place a number of initiatives aimed at developing domestic markets for government securities to reduce debt financing.

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