Mbadi must tackle elephant in the room

He glossed over the biggest elephant in the room- namely public debt. Prof Ndung'u should have made it clear to his successor that the top priority in the medium term will be how to bring down the ratio of debt service to revenues from the current level of 70 percent to a much lower and sustainable level. Mbadi will have to conjure up how to create a bigger fiscal headroom.

Granted, the outgoing minister admitted that our debt levels are unsustainable. He should have gone beyond mere diagnosis and beyond speaking about Kenya’s economic plight in apocalyptic terms to spelling out suggested and realistic solutions.

He made the controversial claim that although we are illiquid, things are not that bad because- according to him- we are still solvent.

Yet the truth of the matter is we are only surviving because we are paying debt with more debt.

Just the other day, we borrowed $500 million from the World Bank to settle some of our maturing debt. Earlier, we borrowed another $1.5 billion Eurobond to settle other maturing obligations.

What is the point of touting that we are still solvent when all we have been doing is dodging the wrath of creditors by contracting more debt to settle other debts?

Today, the language you hear from countries in a much worse situation than us such as Ghana and Ethiopia is ‘debt re-profiling’, ‘domestic debt exchanges’ ‘bond switches’ ‘hair cuts’ ‘domestic dollar bond issues’, etc.

Here the outgoing minister spoke of proposing easy solutions. He advised Mr Mbadi to look to the Middle East and to dump the West for a solution.

Read: Mbadi meets IMF official with eye on Sh77bn funding

Yet when Saudi Arabia bailed out Egypt the other day, the first condition the Gulf State gave to Cairo was sort itself out and seek the approval of the IMF- first.

We have been talking about floating a Sukuk bond in the Middle East. We learnt that under Islamic financing regimes, you have to provide physical assets as security. We were told that we have to change our own laws first.

The government has also been talking about a panda bond in China. A samurai bond floated in the Japanese markets has also been touted.

My sources at the Treasury working on this ‘go East’ strategy have been whispering to me the Asian markets are demanding that we must first join the Asian Development Bank before we can enter some of these markets.

It has also been whispered to me that the cost of subscribing shares to this regional bank has proved to be prohibitive.

I gather that even the regional banks - Trade Development Bank and the Cairo-based Afreximbank- also want us to pay more in share subscription before we can access those prohibitively expensive dollar loans they have been arranging for us.

Clearly, Prof Ndung'u has exited without a credible solution to the debt problem to his successor.

He also glossed over yet another urgent priority for a new Treasury Cabinet Secretary, namely accounting reform and the proposal to transit the national government to an accrual accounting system anchored on a double entry general ledger and supported by a modern and robust ERP.

That contraption we call IFMIS we are using has failed dismally and has only served to abet corruption. That is the lesson we learnt from the infamous NYS scandal. The fact that IFMIS had been captured by thieving elites also played out in the infamous corvid billionaire’s scandal.

Yes, Prof Ndung'u talked about plans by the government to link the payroll to IFMIS and to the KRA payment platforms. This only scratches the surface. The current IFMIS must be scrapped.

As an experienced certified accountant, Mr Mbadi is best placed to steer this important transition. Under the anachronistic cash accounting system, we use today, you only recognise a transaction at the point of payment.

You pile up invoices and contractor claims running for years then you call you nickname them ‘pending bills’.

It’s the reason successive administrations have had to go through the corruption-ridden ritual of appointing those so- called ‘pending verification committees’ to scrutinise the mountains of vouchers that have piled up for years.

Here is the third elephant in the room for a finance minister in the current setting and economic context. The lack of adequate professional capacity at the Treasury.

In the handing over notes, Prof Ndung'u revealed that the Treasury was 40 percent short in terms of professionals with the critical skills.

The outgoing minister neither spelt out what he has done to redress the situation nor suggest a solution to his successor. It should not be an excuse for appointing foreign consultants.

The writer is a former managing editor of The EastAfrican.