Rapid debt accumulation worries policy makers

The rapid accumulation of public debt over the past decade is a major concern for policy makers in most developing countries, including those in the MEFMI region. This was said by the Director of the Research Department in the Central Bank of Kenya, Mr. Raphael Otieno. He was speaking during the official opening of the in-country workshop on Debt Sustainability Analysis (DSA) held from 4 to 15 March 2019 at the Kenya School of
Monetary Studies in Nairobi, Kenya. Mr. Otieno, who is a former Director of the MEFMI Debt Management Programme, said that public sector borrowing has increased sharply in most countries, including Kenya, as governments try to supplement domestic revenue to implement their development plans. He said that commercial external borrowing from bilateral sources, issuance of Euro Bonds, syndicated loans and other commercial loans has increased the risks to long term debt sustainability. He noted that such loans are costly and have high refinancing risks due to the stringent repayment terms and conditions. He added that domestic debt is also aggravating the vulnerabilities. In this regard, Mr. Otieno said that it is important for governments to conduct debt sustainability analysis regularly in order to design effective debt management strategies. He said that the IMF/World Bank Debt Sustainability Framework (DSF) is an important tool for conducting DSAs as the basis for advising policy makers on borrowing decisions. He thanked MEFMI for responding to the CBK's request for technical assistance in conducting a debt sustainability analysis workshop for Kenya.

The DSA workshop aimed at building the capacity of officials from the CBK on the use of the IMF/World Bank revised DSF to conduct a DSA. It also included a practical DSA exercise for Kenya to analyse sustainability of the country's public and publicly guaranteed debt, in view of the recent macroeconomic developments and concerns about rising debt levels.

The workshop resource persons and CBK officials delivered presentations on the macroeconomic variables used in DSA and on the domestic capital market, focusing on the characteristics of the domestic debt portfolio, maturities and yield curve. The workshop was facilitated by Dr. Nebson Mupunga, a MEFMI Accredited Fellow of the Reserve Bank of Zimbabwe and Ms. Cristina Dimande, a MEFMI Programme Manager. A total of 14 officials from the Central Bank of Kenya attended the workshop, including two (2) participants from the Bank of South Sudan.

The main output of the workshop was that it enhanced the capacity of participants to use the IMF/World Bank revised DSF to conduct a DSA. Participants used the knowledge and skills gained from the workshop to conduct a debt sustainability analysis for Kenya, and a draft report on the findings. Recommendations of the debt sustainability analysis were prepared by the participants. MEFMI expects the participants to finalize the DSA report and present to Kenya authorities for consideration.