House budget office wants changes in debt limit measure

The Parliamentary Budget Office (PBO) wants lawmakers to change how Kenya calculates the public debt ceiling from numerical limit to one based on a ratio of economic output.

BPO — the unit which advises members of parliament (MPs) on financial and economic matters — argues that arbitrary setting and raising of debt ceiling based on a numerical limit is delinked from economic indicators like size of the economy

This comes at a time Treasury secretary Ukur Yatani has indicated he will be seeking approval from MPs to expand the debt limit from the current Sh9 trillion, just over a little over a year after the cap was raised from Sh6 trillion in October 2019.

“The debt ceiling as designed creates a regulatory flaw as it is delinked to the rest of the economy. Choice of a ratio would provide a debt limit that is more responsive to both liquidity and solvency concerns and lead to prudent debt management practice,” PBO analysts wrote in the Budget Options 2021/22 report published Friday last week.

“It limits the regulatory role of the public debt management office given that there is a single regulatory parameter, which is already fixed.”

Public debt crossed Sh7.28 billion last December, an equivalent of 65.6 per cent of gross domestic product (GDP), from Sh6.01 trillion or 58.0 per cent of GDP a year earlier, the Treasury data shows.

This means the debt stock jumped by Sh1.27 trillion in the year through December 2020, reflecting increased borrowing to cover for rising fiscal deficits amid shortfalls in revenue.

The Treasury has projected total public debt to hit Sh7.66 trillion by end of the current financial year in June from Sh6.69 trillion a year earlier, but rise to Sh8.59 trillion in June 2022 and Sh9.37 trillion in the year ending June 2023.

“We don’t want debt to rise but Kenyans want development. We will look at the Treasury proposals and if it is for raising money for development, we have no problem even if they want the ceiling set at Sh20 trillion,” Majority Leader Amos Kimunya, who heads government business in National Assembly, said last week.

“We will look at the merit and demerits on what the budget needs to adhere and not the limit or ceiling.”

President Uhuru Kenyatta’s administration will have borrowed at least Sh6.7 trillion to implement his manifesto in the 10 years since coming to power after inheriting just over Sh1.89 trillion in June 2013 from the Kibaki government.

Analysts at Moody’s Investors Service, while affirming Kenya’s credit rating at B2 negative, wrote on January 13 that Kenya’s “financing risks rose alongside a deteriorating fiscal outlook, external bilateral debt amortizations and short-term domestic debt refinancing needs”.