MPs have approved the conversion of Kenya’s debt ceiling from the current Sh10 trillion to a debt anchor as a percentage of gross domestic product (GDP), removing the final hurdle for Kenya to align with global best practices backed by the International Monetary Fund (IMF).
The Public Debt and Privatisation Committee approved the threshold of the debt anchor of 55 percent of GDP in present value terms. The committee has, however, provided a window not exceeding five per cent to accommodate the current debt threshold to GDP which stands at 60 percent.
“The committee recommends that the threshold for debt shall be a debt anchor of 55 percent and shall not exceed plus five per cent of the gross domestic product in present value terms,” Makali Mulu, the vice-chairperson of the committee, said in a report.
The committee has deleted a clause that sought to create a provision for the Treasury Cabinet Secretary to provide an explanation to Parliament in the case the Finance ministry breaches the debt anchor through excessive borrowing.
The MPs Thursday evening approved the Public Finance Management (Amendment) Bill 2023 through its Second Reading.
President William Ruto’s Cabinet in March gave a nod to the National Assembly to change the debt ceiling from the current limit of no more than Sh10 trillion to an anchor set at 55 percent of GDP in present value terms.
The new ceiling means that the government is already in breach, given that Kenya’s debt is above 70 percent of the GDP and the new administration will now be forced to find means to walk the country backwards through growing the economy and slowing down on new loans.
“The Bill seeks to amend the Public Finance Management Act 2012 by adjusting the framework for monitoring of public debt and borrowing,” the report notes. “Notably, the Bill seeks to amend the Act to address the matter of a public debt ceiling by introducing a threshold.”
The committee said the amendment is supported by the lack of fiscal space to finance the 2023/24 and the medium-term expenditures.
“As at the end of March 2023, public debt amounted to Sh9.39 trillion and is forecasted to range between Sh9.6 trillion by end of June 2023,” said Mr Mulu in the report.
“Given the current stipulated public debt ceiling of Sh10 trillion, the borrowing space to finance the 2023/24 budget estimates is projected to be less than Sh300 billion.”
