National Treasury CS Henry Rotich has said his ministry has proposed interest rate hedging, and foreign currency swap to prevent future cash crises.
Finance cabinet secretary Henry Rotich when he appeared before the senate accounts committee on September 1, 2015. Photo/HEZRON NJOROGE
Rotich speaking in Parliament on Thursday before the Budget Appropriation Committee said, the weakening shilling against the US dollar had contributed to a cash crisis in government.
Rotich was in Parliament following a summons to answer questions on government budgeting and spending which in recent times have seen delayed disbursement of salaries for civil servants.
Rotich added that the ministry is looking at the possibility of swapping foreign exchange trading with the dollar, for other global currencies with a more stable exchange rate.
Rotich noted that while the shilling is currently trading at Sh103 to the dollar, having hit a four-year low of Sh106, other major currencies have mostly stayed stable against the shilling.
The pronouncement came in the wake of an earlier forecast by the World Bank of slower economic growth in the country.
World Bank said on Thursday it had trimmed Kenya’s growth forecast for this year and 2016, saying is facing headwinds from currency volatility and tighter monetary policy.
The CS told the Mutava Musyimi-led committee that as a short term measure, the ministry will in two weeks borrow a syndicated loan of Sh78 billion from foreign banks to ease the cash crunch.
Rotich said Treasury had opted for the syndicated loans as opposed to the domestic loans which he said have unfavourable interest rates that could further compound the crisis.
In the long term the CS said Treasury would be floating a loan offer similar to last year’s Eurobond which earned the country a Sh2 trillion kitty largely for infrastructural development.
Rotich sought to allay fears that the country’s global debt could sink the economy saying that Treasury’s borrowing was hinged on only feasible loans.
The Treasury PS Kamau Thuge said Kenya’s debt is 51 per cent of the country’s GDP and pointed out that the US has a higher debt which is 100 per cent of its GDP, while Japan is servicing a debt that is 200 per cent of its GDP.
The CS however urged KRA to improve revenue collection as this was to be the main source of the Sh2.2 trillion 2015-2016 budget.
He said taxes would contribute Sh1.6 trillion to the budget with Sh220 billion being sourced through loans to cover the deficit.
Rotich added that Treasury is looking into reducing the budget deficit from the current eight per cent with the inclusion of the loan for the construction of the standard gauge railway, to four per cent within two years.
Rotich is expected to appear before the committee next Thursday at 11am to field questions from members of the committee after today’s allotted time elapsed.