An Analysis of the Reporting of Contingent Liabilities in Kenya’s Public Debt Management Legal Framework

Abstract

Kenya’s ballooning public debt has been a major concern in the recent past. In fact, there are fears about the country’s debt sustainability levels. Last year, the International Monetary Fund raised Kenya’s risk of debt distress to high from moderate. What this means is that although the country is not currently facing any repayment difficulties, it may have difficulties servicing its debt due to the slowdown in economic activity. The downgrade from moderate to high risk has been attributed to the outbreak of the COVID-19 pandemic. Over the past few years, the country’s public debt has grown exponentially. The outstanding total public debt and publicly guaranteed public debt at the end of the 2019/2020 financial year was Kshs. 6.7 trillion. This is an equivalent of 65.6 per cent of the Gross Domestic Product. The percentage is way above the 50 per cent level recommended by the World Bank.The increase in public debt has also seen an increase in publicly guaranteed debt and other contingent liabilities. In the financial year 2019/2020, public guaranteed debt increased by Kshs. 5,841 million to Kshs. 165,245 million from Ksh. 159,408 million at the end of June 2019. In the same period, the government has had to pay Kshs. 661.2 million as called up guaranteed debt debts owed by public enterprises that were in financial distress. From the above, it is clear that contingent liabilities form a substantial part of the public debt. However, they are not given much attention. This paper explores the reporting of these liabilities.