Parliament Wednesday evening approved a Treasury notice to change the law and increase the cap for State borrowing to Sh9 trillion, offering it leeway to jerk up the mounting public debt.
MPs unanimously voted to amend the law that restricts public debt at half of the gross domestic product (GDP) in a move that will allow the Treasury to borrow an additional Sh3 trillion in coming years.
The change will allow the Treasury to borrow more in line with its target of increasing public debt to Sh9.1 trillion in the year starting July 2023 from Sh5.7 trillion in June.
There has been a jump in government borrowing since President Uhuru Kenyatta came to power in 2013 - a rise that some politicians and economists say is saddling future generations with too much debt.
The Treasury told MPs that Kenya has little room to raise taxes and therefore needs to raise the debt ceiling to avoid derailing the budget for the financial year that started in July.
“Maintaining the current debt ceiling limits the ability of government to fully implement the 2019/20 budget and subsequent years,” Ukur Yatani, the acting Treasury Secretary told the National Assembly’s Committee on Delegated Legislation.
“There is no scope to raise taxes to close the fiscal deficit without negative effects on the economy,” he added.
This signals that the State will go slow on tax increases, which have formed a key plank in raising government revenues.
Budget and Appropriations Committee (BAC) chairman Kimani Ichung’wah said the country had surpassed its debt ceiling and therefore the need to expand it.
“This means that even the budget we passed this year is not implementable. It means that the Cabinet Secretary for Treasury cannot negotiate even a shilling as we have already exceeded the debt ceiling,” he said.
Kenya’s public debt as a percentage of GDP has increased to 55 percent from 42 percent when Mr Kenyatta took over.
The government has defended the increased borrowing, saying the country must invest in its infrastructure, including roads and railways.
The Treasury’s move to amend the Public Finance Management Act comes amid debate in Parliament to cap borrowing at Sh6 trillion via a Bill sponsored by Emgwen MP Alexander Kosgey.
The Bill demands that the Treasury seeks parliamentary approval before borrowing. Analysts have termed Mr Kosgey's Bill as unrealistic.
"First, we must look at whether the Sh6 trillion debt cap is realistic in the context of our current debt levels," said Renaldo D’Souza, a research analyst at Sterling Capital.
“The country’s leaders are irresponsibly borrowing billions of shillings every year, leaving Kenyans with the heavy burden of repayment through high taxation and not getting value for money,” said Ndung'u Wainaina, executive director at International Centre for Policy and Conflict (ICPC) while calling for an audit of the debt registry.
The Treasury expects public debt to rise to Sh6.4 trillion by June next year, from Sh1.89 trillion in June 2013.
The increased debt has seen Kenya commit more than half of its taxes to repaying loans, leaving little cash for building roads, affordable housing and revamping the health sector.
In the year ended June, Kenya spent Sh826.20 billion on debt repayments or 55.4 percent of the Sh1.49 trillion tax collected in the period.