TONIGHT | CS John Mbadi on the national debt, IMF and gov't austerity measures

right and uh welcome back to the conversation with the cabinet secretary for the national treasury let's start right there because there has been questions raised about the cost of printing money but also the Central Bank of Kenya Governor is talking about it was necessitated by stock outs what have you been able to appraise yourself about because those are things that should be foreseen before there's such a glaring a chance of stock out now some I've not had opportunity to engage with cbk one of the paral under my Ministry MH actually I've had planned to have a meeting with the five Financial in U organ I mean uh state owned Enterprises under my Ministry then I will I have a number so I've tried to stagger the engagement I started with K right and uh I was also engaging with the insurance regulatory Authority I am I intend to have engagement in fact the governor had invited me for a function uh and a meeting subsequently a meeting right but I was engaged in other assignment so I postponed that so after next week was um a bit having quite a lot of Engagement this week and next week then I'll move to cbk and get to engage understand uh the processes and procedures and things that they've done of late and even going forward how uh do we dis come uh tackle issues of monetary policies so this matter I've been uh reading about it I know Parliament is on it which I think is a good thing because Parliament has an over sighting role uh to play in this so I will get more facts more details how they did the procurement the budget how much expenditure later as at now I don't have much information about the old the old process let's engage on something that you might know because you've been at Parliament for quite some time and if to look at the public procurements and Disposal act it talks about classified procurement which can be followed if the procuring entity had given a list to the National treasury cabinet Secretary of things that they think are going to be uh procured through classified means but there's no schedule saying what can be classified are you satisfied with the setup of the law as it is and what would be your opinion you know sometimes the law gives the skeleton the architecture you know we have the Constitution contion usually gives the frame then the statutes give the architecture but then now details sometimes come in regulations so if I've looked at the regulations if there are no regulations then I think there could be some uh gaps and that is why legislation is a continuous process if you discover their gaps then the best thing to do is to bring a legislation to cure those gaps so if we will discover that some of these problems are caused by gaps in our legal framework then we bring amendments to the legal we bring those Provisions in the law which then would make it difficult for anyone to abuse his processes do you know previously how money was being procured through dearu what was the process like actually there were there were questions around dearu I may not get the to the details about it I unless now I go back and check right but there were questions about how were we procuring delu as money printing uh farm for us a lot of it was um there was it was was always the excuse that um money is a very sensitive uh printing of money is a very sensitive process and exercise that you can't give it just to anybody else but again it was discovered that no that is an excuse another thing was that we had a contract with delu which was running for years I think that again lapsed so um yeah but you can't remove or eliminate the possibility that there could be collusions here and there and I think there was a whole investigation around dearu and a lot of recommendations I don't know how far they went okay I don't know whether that is the same case obtaining today that's why I would tell you as the Cs uh who is concerned of the relevant Ministry and you can see um a lot of responsibilities placed on the the table of uh CS Finance or national in charge of national um treasury I will get to understand right all right I think be will allow your time to appraise yourself with that but um the other day when two new cabinet no a cabinent secretary and the Attorney General were being sown in I think it was two days ago yeah two days ago yes yes we saw you being invited to take a photo with the rest of the National Security Council is that so yes why would you sit at the National Security Council I'm told there is a provision in law I need to check that I I also didn't know that I'm in the National Security Council some to be honest you saw I was being invited to stand I thought it is CS interior and the Cs defense yeah and of course the deputy president the president but I'm told there's a provision I don't know I don't think it is in the Constitution maybe the Constitution talks to any other member now so I'm told there is cooption so that the the National Security Council agreed or decided to coopt the CS4 in charge of are you comfortable with that because I'm looking at article 240 of the Constitution there is established National Security Council and Sub sub Article 2 the council consists of the president the deputy president cabinet secretary for defense cabinet secretary for foreign affairs cabinet secretary for internal security the Attorney General the chief of Kenya Defense Forces director general of the National Intelligence service the IG of the National Police Service and the council shall exercise supervisory control over National Security organs and perform any other functions prescribed by national legislation then says that the council shall appoint its secretary then in terms of roles the council shall integrate the domestic foreign and Military policies relating to National Security in order to enable the National Security organs to cooperate and function effectively I'm just wondering what Ro so have you looked at the statutes because I'm told there's a statute which allows cooption again this is something that um I would tell you I also had no idea yeah and uh the there is a statute that co-opt and I think the reasoning was that if you sit in the National Security Council most of the decisions will require funding and then you need uh the the person in charge of uh finances to sit in that that is the explanation I was exp giv because I asked myself really I didn't I wasn't aware I'm a member of this Council so that's interesting because I'm just imagining if the framers of the Constitution intended an extra member to join they would have said that the NSC may corupt it doesn't say that but I mean if the statut if the statute say and it is still in place but the Constitution is supreme that is now for the Judiciary to interpret whether it contradicts the Constitution is supreme in the event you legislate in a manner that would contradict the Constitution it is now and void right in this case I don't think anyone has said that that is um uh contradicts the Constitution if it does I mean if the law says I don't sit in the National Security Council why would I so have you attended any meeting so far no not yet have you attended a cabinet meeting so far there's no cabinet meeting we have attended oh okay yeah so how have you been operating in terms of what you don't have to attend I mean to have um cabinet meetings to Cabinet meetings are supposed to be for cons uh policy consolidation yeah so I know there is one coming up soon you know we were just s in the other day weeks ago yeah so we we you you also want to allow the CSS to acclimatize and understand their their departments Ministries so if you call me the following day after my swearing in what would I discuss in that cabinet okay all right interesting um so let's talk about because according to the Central Bank of Kenya as of May 2024 we had a debt of 10.4 trillion Shillings and there has been a big conversation that we have also Taken part in about the previous regime of a debt ceiling of 10 trillion now a debt ank of 55% of the um gross domestic product or GDP if you like what do you think we need to do because already it appears we have breached the debt anchor what do we do knowing too well that the deficit even in the current year has gone up than it was you know some there's something that I didn't speak to when you asked me the earlier question on what do we need to do with our budget and revenue something that I needed to mention before I come to this question okay and it's also tight to this question is we must also improve on our governance and I spoke to this very eloquently I guess during my vetting and I said clearly that we must look at our procurement system and have uh end to end procurement system today I had an engagement with the head of procurement at the ministry and what is stopping this process is 560 million so it is one of my to-do lists it is one of my priority to do items that we must have a system which would integrate budgeting to procurement to payment even to use of goods so that we eliminate waste because the problem Kenyans have some is not even paying taxes Kenyans have paid taxes they we have one of the most uh Progressive and and and and and u I would call it people who are so interested in the welfare of this country and how we move forward so what they need is that their taxes we are patriots we just need our taxes to be spent properly and that responsibility rests with the national treasury in terms of accounting systems procurement systems and that is one priority area but now coming to your question what do we need to do you know if you look at our debt composition today it's about 50/50 m in terms of external and domestic debts looking at the debt service costs it is much more heavy on domestic debt so you have external debts almost 50% internal debts or domestic debts uh to the tune of about again 50% but when it comes to debt servicing cost domestic debt you pay almost three times what you pay for uh the external debt so telling you clearly that our domestic debt is very expensive we cannot sustain thatt the level where we pay 18% as interest I mean as interest on on the money that we borrow and that is not even factoring in some tax uh REITs um or tax um reliefs given to infrastructure bonds if you buy them so my strategy is that one we must um try to retire expensive debts because even these domestic debts are crowding out the private sector so we must try to retire some of these expensive debt more particularly the short-term debts of treasury bills which are 90 days 182 and one year treasury bills they're too expensive for nothing and they're too short they have too short a period to repay them or to pay them back we we we want to do what we call debt management uh that is Our intention debt management to look at where if we get money then part of that money should go in retiring uh some of the expensive debts as we enhance or we support processes that will lead to collection of more taxes to be able the only other way to retire taxes is to have more money your own money to retire them I mean retire debts and also to stop paying more debt I mean taking more debts going forward that can only be realized if you do two things one you raise more money or two you manage your expenditure so these are things they are multifaceted approaches that we are employing at the moment beginning this financial Year and I hope in the next 3 years uh we will come to a point where uh we will say our debt sustainability is realistic right but I'm wondering because you're saying that we have a lot of um expensive short-term loans which would be the treasury bills yeah according to the Central Bank of Kenya data it's only 12 12 12.7% 12 15% yeah then for treasury bonds 87.2 9% that we should have it the the shortterm debts to below 5% and I will tell you we should also have uh domestic debts should come down uh it should not even be 50% so we are trying uh to enhance or increase the uh concessional loans on the concessional loans M and reduce our domestic borrowing there was The concessionary mean world Bank IMF yes we have the multinationals you can even have by the way bilateral like sorry Sam yeah Japanese government give their loans at about 1% MH 1.7 1.5% so even though it is bilateral but it is still cheaper MH so the conal loans can be multilateral they can be bilateral multilateral sometimes have a lot of conditionalities which become difficult to to to live with like now we have with IMF Etc so but again we cannot run away from them because it sends a wrong signal to the market if you run away from IMF you would affect your financial system completely so what we do is just to manage them and tell them that we are also still Sovereign as a nation we cannot do what would be hurting our our our Citizen and I'm very clear on that in my engagement with with IMF that we must do things that are good for this country yes we agree with you we must improve governance we must enhance or improve uh or mobilize more Revenue but we have to do it with a human face we must remember that Kenyans have to eat and they have to live and we cannot do anything that would destabilize our economy you recently had a meeting with the IMF representative in the country um now that you're there what are some of those conditionalities that have been put that you think could be attributable to what has been happening in this country especially the finance act 2023 and finance bill 2024 you see the meeting that I had with the IMF was more like a cuty call but we went ahead to discuss even the upcoming meeting the board meeting of IMF MH largely our agreement now with IMF is on the it is anchored on what we call Revenue mobilization that we need to demonstrate that we are able to sustain our debt service MH and by of course you'll understand IMF it is a bank it is in a financial institution it gives you money and expect it back yeah so they would want to see if your economy has the resilience as the capacity to be able to service the debts but then in the process they will tell you we want um clear demonstration that you're going to collect more money and that is why sometimes I think we went to this uh trajectory of trying to show give more tax rates uh tax uh measures that clearly were not very popular with Kenyans to to demonstrate to IMF that we could collect more money but I think IMF have also realized that Kenyans have have a right we are in a society which is democratic you can't just come up with policies that Kenyans don't agree to or would agree with so my discussion with them was very clear that remember that finance bill of 2024 is off the table mhm the 2023 one they had a concern that the courts had ruled the the court of appeal had ruled um that that act was unconstitu so they were like then so what next So my answer to that was fine if it will remain we have already appealed uh which now I think we are in a better position because the Supreme Court has up I mean has has given a stay but I said and I mentioned that we are reforming K to collect more money okay and I also mentioned that we already have a finance Act of 2022 even if 23 Falls we can use the finance Act of 2022 to still continue to collect revenue and again we need to enhance Revenue collection Without Really changing the tax rates and I have spoken to this a number of times um and I believe it and I mean it I'm not a conman I didn't come to the treasury to continue with business as usual I'm very clear even to the appointing authority I've told him very clearly my president you must understand that I've come here to make to do things different L and is's in agreement with me so we are not going to oppress Kenyans with unnecessary taxes just because we have been told to do so we must reason with IMF we must know that IMF is also our bank we must reason with them much as we would want to still engage with them because if you discontinue engagement with IMF without any justification then you send a wrong signal to the market that we don't want to do sure but the bottom line and the solution to all this is to self sustain and I think the objective of the government is it was 3 years from this financial year which we may just a little bit to have a balanced budget so that we don't go borrowing money every day you can't live by borrowing we have a limit so that so how does the situation that affected the country on finance bill 2024 how does it affect the Staters of the agreement with IMF and how soon do we know if anything is changing you know IMF would is it's an institution that argues and reasons so if they feel that now what has happened in Kenya is something that we cannot um sustain or I mean it's not acceptable to us then they would just decline in in in releasing the other funds because we see the program we have with them is lasting up to April next year but we can start another program which may have other objectives and other conditions it doesn't have to be Revenue mobilization it can be something else but so far there is no indication okay that that has impaired our relationship with them how do you know if we okay with them I'm not saying I know we okay but there are no indications as yet because we had their representatives we engaged we talked and you see IMF the the people who are in the board are from these countries we know the USA the UK the Germany it is I have held discussions in the the past few days with most of these embassies I was with the American ambassador I was with the UK Ambassador today I was with the German ambass ambassador in my office Al we were with also with the Chinese Ambassador today so I met the Chinese Ambassador the German ambassador they have their concerns but not to impair our relationship and they're looking forward to our engagement uh at the board of IMF and I think I have confident that they're going to support our course because they also understand uh what is happening in Kenya it is not just in Kenya alone problems happen everywhere these are not even problems these are challenges some uh let me be clear on that these are challenges challenges happen in All jurisdictions In All Nations so in my engagement with IMF next month which when we'll have the board and I hope this time the meeting will materialize because it was supposed to take place in July it was pushed because of the issues around and then later it was planned for again because there was a new CS coming in they decided to hold put it in a bance up to July I mean up to September so in September I hope we are going to have that board meeting and uh continue with our engagement with the IMF there's also the problem and your predecessor while handing over mentioned about the gray listing because of the situation that um we are also being accused of money laundering and financing of terrorism with no clear strategy on how to deal with that what are the efforts to ensuring that we get off the gry list it is a very complex topic that we may not exhaust in fact it it may require very proper some good preparation for me to give the details but I will tell you one of the challenges that we are facing as a country is our location you see um look at what is happening in our neighbors with some countries bordering us without even mentioning which don't have formal Financial systems so sometimes we find some of those illicit farms getting into this country we have our neighbor next door which where terrorism is almost the order of the day without again mentioning name so that is putting us in some condition that is not very stable but we there are you know the the we have um the global body yeah that deals with this matter and then we are part of the East and and southern Africa um anti-money laundering uh task force so we are about 22 countries right and on 30th actually the meeting is starting from uh has actually already started in Mombasa M Kenya is now the chair of the eastn southern Africa uh anti-money laundering task force and then we have so we we have the meetings going on we have hosted the 22 countries at IND diani uh on 29th and actually on 30th I'm as the chair I'm going to address that function and chair it and we are discussing parameters you know we are doing self- evaluation and uh we were evaluated some time back things have improved in fact the indicators you know they it is only that they have we have not been evaluated again so we are going to be evaluated soon and my hope is that we are going to get out of the gray listing right because it is very important for us uh as country if you're gry listed um then your financial system becomes uh monitored so closely right and that is not very good for a country because you may end up finding yourself in dark listing and and so we want to avoid all that and get out and some of the parameters where we failed in the last evaluation we have improved and they have brought positive reports so we will continue because it's about legislative framework it's about um what efforts you use to combat these crimes and more particularly also the judicial process which judicial process we have a problem with because you know we have a very Progressive Constitution uh there are certain things that they require which may go against our constitution uh so we we are trying to discuss that in the framework that they must also understand that we have a legal framework in Kenya which we cannot go against but a lot of those conditions we are trying to fulfill and in Duos we will get out of the gr listing is one of the priority uh items again for the ministry okay let's walk back a little bit to some of the measures that were introduced by your predecessor before he left office um because of the withdraw of the finance bill 2024 the austerity measures that are supposed to be taken including advises to be reduced by 50% the financing of the office of the first lady was to be scrapped for the office of the espouse of the Deputy president president and the spouse of the Prime cabinet secretary how far away with enforcing some of those measures that are that were also released by the head of Public Service to be implemented yeah I think we gave a budget to the various Ministries department and state agencies to use M uh I've not seen any indication that that would be violated and so it is uh I believe that they will make sure that they operate within the budget cuts that were implemented in the supplementary budget one if there will we need for another additional budget cuts which I don't know how much we can go that route then it will be captured in supplementary budget too but the austerity measures are in place on paper but have we had suckings of the extra advisors at state house at Ministries advisers in the Ministries my understanding is that they have been reduced if there is anybody who has hired more advisor uh that is illegal because again ministers have just come in and we were told very clearly one advisor so there is no uh nothing like violation around that it was even emphasized again during our induction um and and and so um the advisers and the advisers in the ministri is usually at the level of the cabinet secretary right so I don't expect any other officer in the ministry to have advis us and the cabinet secretaries have just come in and they're coming in with new advisors sure so if you're told now for you it is one it is one and I'm sure my colleagues have implemented that it is one um at State House Office of the Deputy president I may not know how many advisers are at the state house and even the Office of the President but since the president pronounce himself I think he must lead by example and so the advisor at state may not be competent to say how many they are mhm as you tell us what success looks for you in about 100 days if you want to use at that Target what are the efforts are you putting in place to ensure that because every person including yourself has spoken about graft being one of the THS of resources of public sector what are the efforts that you look forward to putting in place I actually don't want to condition myself today because really some what is important is to lay a framework that would stand the test of times but maybe you can talk of shortterm medium-term and and longterm measures some of of the shortterm measures in my view is to make sure that we raise as much revenue as we can without putting extra burden on Kenyans because that is not a route to take so that is why you can see my priorities on K and working with K to improve on Revenue collection if that can be realized in the shortest time possible I'll see that as one of the major achievements the other one would be to ensure that we don't abuse some of the provisions or some of the responsibilities given to the cabinet secretary like Abus to article 223 of our constitution I am going to make sure that that is not done under my watch something else around that it's important to just indicate that article 223 allows government to spend what has not been budgeted for yeah that is correct you know the Kenyans have now talked about article 223 that the average Kenyan in the street know what it is so that's why I did it's good for every other viewer but it's important to remind them what it is all about that the cabinet secret has has the power to Grant expenditure of some certain sums as requested to meet certain category of expenditures although with the Luna in law of lack of clarity but then that should be taken to Parliament for ratification within two months and or National Assembly so that is something that I'm uh I've said I'm going to make sure that it is not abused there is also the issue of giving tax waivers and also what we call tax guarantees by the treasury to pay that i' also mentioned clearly that you have to really convince me that the tax waer is necessary and that the tax um uh the tax uh guarantee is also necessary and we may need even to do audit of the previous on for me we need to seal all the loopholes in tax uh which would cause tax leakages something else that I would talk about is about procurement I've said it m i want to see by the deadline which the which we have given to ourselves of the beginning of the next fiscal year to have in place end to endend procurement system that to me is important I I also talked about what what does that mean end to end I actually explained it here that we should see a procurement system which starts from um from budgeting to procurement to payment and to usage of goods integrated so that we don't have this broken system which is PR to abuse mhm yeah that that needs to be done an integrated procurement system all right yeah well that was much of it is shortterm or is it medium term because you've spoken a lot of it short and medium short and medium term because really we don't have luxury of time when you are operating in an environment somewhere you your debt sustainability has become questionable uh there is risk of of of of distress then you must move with speed you must chew the Govern and scale the stairs so that is why we are talking about reforming K talking about procurement we are also talking about auditing certain areas which are prone to risk to high risk one of them being payroll our payroll system is is doubtful I mean our payroll is doubtful whether we are paying ghost workers or not two there is the Ministry of Education capitation we feel that there is a possibility that we are financing students that who don't exist so these are things that um we are talking about and need to be addressed quickly I'm not saying we are going to do auditing but we are going to do a review you know auditing as challenges when you talk of auditing uh then that job belongs to the of the auditor general but as a government you can use your system you can use your internal audits to review your systems to see where there could be leakages so these are things that we must do very quickly we have no luxury of time was it do we know how many students are being financed under the free primary education yeah the Ministry of Education has data but you see some that data is is is dependent on on on the the the feeds or or the the data that is given direct from schools and uh some we belong to this we all in this country we hear of these stories where the the register is inflated you remember when n was resisted and even that n doesn't appear to be foolproof so we must be clear are we financing remember there was a case where even some schools didn't exist Y and money was released and so that that's what I'm asking do you know of a figure no no no I don't have the figure offhe of how many students okay we are financing what I know is that the figures are doubtful figures are doubtful please stay with us um we we come back I thought we are done some we will come back with feedback from Kenya and what they are saying and if they have any questions that they are raising no uh but first uh we take a short break we'll be back with the sports and the feedback for weri here stay tuned