Treasury blocks floating of Sh150bn roads bond

The National Treasury has slammed brakes on the floating of a Sh150 billion infrastructure bond, saying it will affect the country’s debt sustainability level.

Treasury Chief Administrative Secretary (CAS) Nelson Gaichuhie told the National Assembly Transport roads committee that following the warning by International Monetary Fund (IMF) on Kenya’s sustainability level, it cannot allow the by Kenya Roads Board (KRB) to borrow through the bond.

Mr Gaichuhie said Kenya is currently in a 38-month IMF programme on economic recovery and sustainable growth of public debt, therefore, allowing KRB to borrow will go against the rules issued by IMF.

“Any violations of these set limits will jeopardise the support that we expect from multilateral and bilateral development partners. At Treasury, we want to continue to explore other financing options for infrastructural development that will not adversely affect the debt sustainable level and micro economic stability,” Mr Gaichuhie said.

The CAS told the lawmakers that within the 38-month period, the government committed to following the tight deficit path to reduce debt accumulation.

Authorised limit

“The proposed borrowing of Sh75 billion by Kenya Roads Board through a bond issuance to finance additional expenditure will expand fiscal debt and the level of borrowing beyond the authorised limit under the IMF programme,” Mr Gaichuhie said.

“As National Treasury we feel that if we allow KRB to borrow we feel that we might jeopardise our agreement with the multilateral and bilateral partners,” he added.

As at July 2021 the CAS said the country's debt stood at 7.8 trillion, which comprises 3.8 trillion domestic borrowing and Sh4 trillion from external sources.

The proceeds of the bond that was to be floated in September this year was supposed to be taken in two tranches of Sh75 billion is to be used to offset debt to contractors and finance the completion of ongoing road projects.

Both the Central Bank of Kenya (CBK), and the Attorney-General Paul Kihara have already approved the sale of the bond.

Budgetary allocation outstripped

Infrastructure Principal Secretary Paul Mainga Tuesday told the committee that the bond is necessitated by infrastructural development needs in the country that is outstripping the budgetary allocation from the Treasury.

“We get an annual budget of Sh50 billion per year from the National Treasury yet our commitment on road projects is between Sh650 to 700 billion for roads alone,” Prof Mainga said.

The PS said pending road bills currently stand at Sh100 billion, which must be paid before contractors can resume work.

Prof Mainga told MPs that every year, the ministry pays Sh5 billion in form of penalties to contractors on idle plants and late payments, an amount he says may increase this year.

“I fear that this year the penalties may rise to Sh10 billion. We don’t need to pay this kind of money in form of penalties as it can be used to build more roads,” he explained.

The PS told MPs that Kenya National Highway Authority (Kenha) alone requires about Sh200 to 300 million a year for road maintenance, and it was becoming clear that the route of exchequer to finance projects will just leave us in debts.

“The reason we are interested in the bond is so that we can free the National Treasury of the burden of having to sort out our bills. It’s an urgent matter that requires decision making so that we can move forward,” Prof Mainga said.

Prof Maringa said South Africa which has one of the best models of roads in Africa has been able to do massive infrastructural development through roads bonds hence Kenya won’t be the first one to go that route.

Parliament in 2019 enacted the Kenya Roads Board Act, which gave the Kenya Roads Board power to raise funds for road maintenance.

Break from road toll

Bond issuance to source funds for maintaining roads is a long break from the traditional road toll and fuel levy approach where KRB would make disbursements to road agencies and county governments every year.

Committee chairman David Pkosing (Pokot South) said the standoff on the bond could be due to what he termed as sibling rivalry between the National Treasury and Kenya Roads Board.

The committee gave Treasury, Ministry of Roads and the Kenya Roads Board time to consult and return with a truce on how the Sh100 billion could be sourced

“We cannot continue like this with this blame game yet our people are dying in Enziu River because there is no money to do bridges. All we need is money to do our roads, not academics,” Mr Pkosing said, referring to the weekend accident where a bus was washed by flood water into a river, killing more than 30 people.

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