How debt ceiling policy shift is affecting Kenya budget making


National Treasury Principal Secretary, Chris Kiptoo. FILE PHOTO | LUCY WANJIRU | NMG

The Treasury will cut the budget for the next financial year by at least Sh133 billion if Parliament rejects a proposal to amend the current debt ceiling of Sh10 trillion with a new measure based on the gross domestic product (GDP).

Treasury Principal Secretary Chris Kiptoo told MPs that it has initiated the process of amending the debt ceiling from a numerical number of Sh10 trillion to a debt anchor of 55 percent of the debt to the GDP in present value terms.

Mr Kiptoo on Monday told the National Assembly’s committee on Public Debt and Privatisation that the Cabinet has since approved the amendment, which will be submitted to Parliament for approval after public participation to enable the national Treasury to fully finance the budget deficit in the financial year 2023/24 and the medium term.

The committee said it will approve the Budget Policy Statement (BPS) based on the current debt ceiling of Sh10 trillion given that the Treasury is yet to table in Parliament a Bill to convert the debt cap from a numerical figure of Sh10 trillion to 55 percent of the gross domestic product (GDP.)

“We are going to work with the current law that sets the debt limit at Sh10 trillion. We cannot anticipate a Bill that we have not seen as a House. You will work with what we have as the law currently,” Abdi Shurie, who chairs the committee ruled.

Dr Kiptoo said if MPs fail to approve the conversion of the debt ceiling to a percentage of the GDP, the Treasury will have no option but to cut Sh133 billion from the next budget.

“If we do not amend the debt ceiling, it means that the Treasury will go back to the drawing board and cut Sh133 billion in the coming budget so that we attain the current Sh587 billion fiscal space. We have a fiscal deficit of Sh720.1 billion.”

Dr Kiptoo said that from a mix of debt stock of Sh9.14 trillion as of December 2022 and projected net borrowing for the rest of the current financial year and a fiscal deficit of Sh720.1 billion in the next financial year, public debt stock is expected to surpass the Sh10 trillion debt limit in the financial year 2023/24.

“The public debt is projected to be Sh9.413 trillion as at end of June 2023 implying a borrowing space of Sh587 billion in the financial year in the financial year 2023/24,” Dr Kiptoo said during the scrutiny of the 2023 Medium-Term Debt Management Strategy.

Dr Kiptoo said the stock of public and publicly guaranteed debt grew from Sh8.03 trillion (61.6 per cent in present value terms) by December 2021 to Sh9.14 trillion (60 per cent in present value terms) at the end of December 2022.

“Public debt comprises external debt of Sh4.67 trillion and domestic debt of Sh4.47 trillion. The growth in public debt is attributed to external and domestic borrowing and appreciation of the foreign currency exchange rate against Kenya shilling during the period under review,” Dr Kiptoo said.

He said external debt comprises Sh2.1 trillion in multilateral debts (47 per cent) and Sh1.21 trillion in bilateral debt (26 per cent) out of which China accounts for 67 percent.

The external debt also comprises Sh1.25 trillion commercial debt or 27 percent with the Eurobond accounting for Sh0.87 trillion (19 percent).

“We will have to borrow to retire a Sh270 billion Eurobond that is maturing next year,” Dr Kiptoo said.

On the domestic debt, Dr Kiptoo said treasury bonds account for Sh3.71 trillion or 87 per cent, the Treasury bills Sh0,67 trillion (14 per cent) and Sh0.09 trillion or two percent is mainly an overdraft from the Central Bank of Kenya (CBK).

He said the proposed financial year 2023/24 budget has a fiscal deficit of Sh720.1 billion or 4.4 per cent of the GDP where net foreign financing is projected to be Sh198.6 billion.

The Treasury projects commercial borrowing of Sh270 billion, programmes loans (Sh65 billion), projected loans and appropriation in aid (Sh239 billion) and external repayments of Sh476 billion.

He said net domestic financing will account for Sh521.5 billion in the year to June 2024.

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