Kenya is set to abandon the current Sh9 trillion legal ceiling of debt issuance and revert to one that is pegged on the gross domestic product (GDP).
This was revealed by the International Monetary Fund (IMF) in its first review of the extended arrangement under the Extended Fund Facility and Extended Credit Facility, a Sh256 billion credit facility programme.
The IMF said Kenyan authorities have proposed an amendment to the Public Finance Management Regulations to replace the current nominal legal ceiling on debt issuance currently capped at Sh9 trillion.
Instead, they want to replace it with a medium-term debt-to-GDP anchor of 55 per cent of GDP in present value terms, discounting for low interest. “Staff welcomes the new anchor and introduction of an accountability requirement — whereby the government explains to Parliament how planned policies would bring the debt ratio from current to targeted levels,” said IMF.
READ MORE
Why the IMF is not doing enough to support Africa
Leveraging PPPs to address Kenya's infrastructure crisis
CBK retains top spot in Kenya's wealthiest parastatals list
The role of IMF partnership amid Kenya's economic resilience
It had been reported that Treasury intended to ask the National Assembly to raise the ceiling to Sh12 trillion. However, it now appears Treasury has abandoned that path.
“The IMF-supported programme will provide strong reinforcement for the authorities’ plans to durably reduce debt in the coming few years,” said the IMF. Kenya’s debt as at end of March stood at Sh7.3 trillion. With the country expected to borrow about Sh1 trillion in the financial year 2021/22, the Sh9 trillion ceiling will be surpassed.
