Economy

Kenya to raise debt ceiling again as headroom reduces

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Treasury CS Ukur Yatani. FILE PHOTO | NMG

Kenya will raise its debt ceiling of Sh9 trillion to accommodate gaps in its expenditure needs amid underperforming tax collections, the National Treasury has said, confirming reports that emerged from corridors of Parliament early January.

The Treasury says in Medium Term Debt Management Strategy 2021 that it will be tabling changes to the Public Finance Management law for approval by legislators in the near future to raise the cap on debt, without disclosing the fresh limit it is looking at.

This comes just over a year since the lawmakers raised the ceiling from Sh6 trillion in October 2019.

“The formulation of this strategy has been on a background of public debt stock fast approaching the statutory ceiling of Sh9 trillion set out in the Public Finance Management Act, 2012,” Treasury officials wrote in the debt strategy paper for the next three years.

“As a result, the implementation of this strategy may require the revision of the debt ceiling through the amendment of the PFM Act based on future borrowing requirements.”

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

Treasury earlier 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 that follows.

However, the Parliamentary Budget Office (PBO) — the unit which advises lawmakers on financial and economic matters — wrote in a report late last month that Kenya’s debt stock will climb to Sh7.8 trillion by June, an equivalent of 69 percent of GDP.

“This (upward) trend is projected to continue over the medium term as the expansionary economic blueprint, the need for fiscal stimulus and debt servicing obligations continue to drive expenditures even as revenue generation remains low and the economy continues to underperform,” the PBO analysts wrote in a report titled “Evading recessionary pressure under a mounting debt burden”.