Parliament Tuesday evening increased the public debt ceiling to Sh10 trillion as a stop-gap measure to allow the next government to borrow Sh846 billion to plug the budget deficit in the fiscal year starting July 1.
Leader of Majority Amos Kimunya, who initiated the debate on the debt ceiling adjustment, told MPs that the country is in a situation where it cannot do the 2022/23 budget without raising the debt cap.
He said the increase in the debt limit is an interim measure that will allow the next government to seek funding to run its programmes as it works towards sustainable ways to raise internally generated revenue.
“I am looking at this debt cap increase as an interim measure. The administration coming in on August 9 should come back to this House and ensure our borrowing is at a percentage of GDP,” Mr Kimunya said.
Lawmakers amended section 50(2) of the Public Finance Management Regulations 2015 to require that “the public debt shall not exceed ten trillion shillings.”
The lawmakers raised the debt ceiling to Sh9 trillion from Sh6 trillion previously in October 2019.
The raising of the debt ceiling comes barely two months after Mr Kimunya successfully pushed an amendment to the 2022/23 Budget Policy Statement (PBS), directing the Treasury to amend the law to accommodate the Sh846 billion budget deficit.
Mr Kimunya told MPs that the committee chaired by Tiaty MP William Kamket rejected the Treasury’s proposal to amend the Public Finance Management (Amendment) Bill 2022 that seeks to cap public debt at 55 percent of GDP.
The proposed limit of 55 percent of GDP in net present value terms is in line with international standards for a lower-middle-income economy such as Kenya.
An analysis by the Parliamentary Budget Office — a professional unit that advises lawmakers on financial and economic matters — showed that Kenya’s public debt at Sh7.99 trillion last September was equivalent to 64.2 percent of GDP on net present value terms, higher than the 55 per cent being proposed.
The Bill sought to allow the State to breach the borrowing caps in the event of war, a health pandemic or natural disasters as long as it can explain to Parliament what caused excessive borrowing.
“When Cabinet Secretary for the National Treasury appeared before the House during the 2022/23 budget speech, he said he would propose to the house to change the manner of computation of the debt limit to be capped at 55 percent of GDP,” he said.
“As consultations were going on it became clear to the Committee on Delegated Legislation that even the GDP at net present value was more complicated as there were conflicting figures. People wanted to know the exact debt limit.”
Mr Kimunya said the Kamket-led committee suggested to the House the need to go with a debt cap that is known.
“The incoming House will come with their spending limits and propose what they want. This is an interim debt limit and we proposed the limit to be increased given the shilling has deteriorated.
He said the Treasury sought to raise an extra Sh57 billion in the financial year starting July 1 but the Finance and Planning committee has reduced it to Sh34 billion through changes to proposed taxes.
“We already know what we can raise from tax revenue. The alternative will be to look at the entire budget and slash about Sh600 billion,” Mr Kimunya said.
Kimani Ichung’wa, the former Budget and Appropriations Committee chairperson opposed the increase in debt cap arguing it will burden ordinary Kenyans.
“As much as we are utilising other people’s money, we will use taxpayers’ money to repay. I object to the rise. We are spending out of the budget and that is what is ballooning our public debt,” the MP for Kikuyu said.