Treasury raises debt ceiling to Sh10 trillion

Treasury CS Ukur Yatani. [David Njaaga, Standard]

The National Treasury has raised the debt ceiling to Sh10 trillion, retreating from an earlier position to return to a debt-to-GDP (Gross Domestic Product) anchor of 55 per cent.

In a gazette notice dated May 26, Treasury Cabinet Secretary Ukur Yatani raised the debt ceiling from the current Sh9 trillion, even as the government inched to breaching this limit.

In the amendment, Mr Yatani wants to change the law from a requirement that “the national public debt shall not exceed 50 per cent of the GDP in net present value terms. “Pursuant to the provision of section 50 (2) of the Act, the public debt shall not exceed Sh10 trillion,” read the legal notice in part - signed by Yatani.

As of March 2022, the country’s total stock of debt stood at Sh8.4 trillion, just Sh600 billion shy of the Sh9 trillion mark. In the current financial year, the National Treasury is expected to borrow close to Sh1 trillion. Initially, the National Treasury had proposed changes to the Finance Act that would see it bypass lawmakers in its borrowing plans. This is after Treasury proposed to shift to an anchor of 55 per cent of GDP in net present value (NPV) terms.

With the changes, the MPs were going to be left to play the role of rubber-stamping borrowing decisions already made by the government as part of sweeping recommendations that will also see the country abandon the Sh9 trillion debt ceiling.

As opposed to the current case where Treasury is barred from exceeding the Sh9 trillion debt ceiling, the Exchequer would have had the window to over-borrow as long as it gave Parliament a plausible explanation.

Some of the reasons that the Treasury would have offered include depreciation of the shilling and unexpected spending due to unforeseen factors such as drought or pandemics.

“The Cabinet Secretary shall provide Parliament with a written explanation on the said circumstances leading to the breach of the limit and provide a time-bound remedial plan,” reads part of the Public Finance Management (Amendment) Bill, 2022.

Treasury had insisted that pegging public debt to GDP (monetary value of all products in the economy) is an international best practice.

It is also part of the Extended Fund Facility (EFF) and the Extended Credit Facility (ECC) that the government has with the International Monetary Fund (IMF). -“The credibility of this new framework will anchor expectations for all stakeholders around the government’s intended debt reduction path and will benefit from our commitments under the EFF/ECF-supported programme with IMF,” Treasury told IMF.

Interestingly, as of June 2021, Kenya’s debt to GDP in net present value (NPV) terms was at 59 per cent, which means that it has already surpassed the legal threshold.