Economy

Treasury seeks debt law change as MPs reject borrowing target

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The National Treasury building in Nairobi. PHOTO | SALATON NJAU | NMG

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Summary

  • Parliament’s Budget and Appropriations Committee imposed a Sh400 billion cap on new debt to avoid breaching the Sh9 trillion loan ceiling a move that could throw the next government into a crisis.
  • Treasury has introduced changes to the public finance management law moving from the loan limits from a fixed ceiling to 55 percent of the gross domestic product but is short on timelines.

The National Treasury is in a rush to change the public finance law after Members of Parliament refused to sign off proposals to borrow Sh846 billion in the next financial year.

Parliament’s Budget and Appropriations Committee imposed a Sh400 billion cap on new debt to avoid breaching the Sh9 trillion loan ceiling a move that could throw the next government into a crisis.

Treasury has introduced changes to the public finance management law moving from the loan limits from a fixed ceiling to 55 percent of the gross domestic product but is short on timelines.

Budget papers show that Treasury tried to include the changes in a miscellaneous amendment bill through the Attorney General’s office to have the changes passed ‘promptly’ but the AG advised that the bill should be presented independently.

Treasury then tried to include the change in the Finance Bill but was again rebuffed since the money bill is only read in the National Assembly yet debt affects counties and would have to be passed through the senate.

Treasury says it will now have to bring the bill through legal notices and collect public opinion which would take a while so the government requested the Budget Policy Statement to be passed even though the proposed spending breached the debt ceiling.

“As demonstrated above, the National Treasury is committed to present the proposed amendments in parliament for approval as soon as public consultations are finalized.

The National Treasury requests the National Assembly to approve the 2022 Budget Policy Statement and Medium Term debt strategy,” CS Ukur Yatani said in a letter to the Assembly dated February 8.

Treasury wants to spend Sh3.2 trillion with a budget deficit of Sh846 billion which would automatically breach the debt limits since Kenyan loans will hit Sh8.6 trillion in June.

MPs refused to pass the deficit stating that the effect of approving the BPS would be an indirect breach of the ceiling and requested Treasury obtain an advisory from the Attorney General’s office.

Treasury has attached a letter from the AG which advised that the BPS does not constitute a breach since it is only an intention of spending and only when the government actually takes out a loan will the breach occur.

MPS agreed to pass the BPS on the condition that they include a caveat that Treasury can only borrow Sh400 billion.

This puts the government in a tight spot since it needs to spend Sh2 trillion on the executive, Sh38.4 billion on parliament, Sh18.8 billion on the judiciary and Sh370 billion in counties.

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