Kenya’s debt hit a record Sh10.027 trillion last week, breaching the statutory debt ceiling set at Sh10 trillion by Members of Parliament last year, even as debt servicing costs eat up more than two-thirds of tax revenue.
Kenya has been on a borrowing spree in recent months at a time when tax revenue collection has fallen far short of targets amid an economic slowdown, forcing the government to tighten spending through two supplementary budgets.
Data released by the Central Bank of Kenya (CBK) on Friday showed that the country’s domestic borrowing had reached Sh4.711 trillion by June 23, while external debt had also risen to Sh5.092 trillion in April.
This external borrowing was before the country received the second tranche of a $600 million (Sh84.36 billion) syndicated loan in May.
The first tranche of the syndicated loan of $200 million (Sh28.12 billion) had been transferred to the country in April to help shore up foreign reserves.
Kenya received a further $1 billion (Sh140.6 billion) loan from the World Bank in May, bringing the country’s total external debt to Sh5.316 trillion, excluding the final $100 million (Sh14.06 billion) tranche of the syndicated loan, which National Treasury had earlier said could be disbursed in June.
“As at 19 May 2023, Kenya has received a disbursement of $800 million from a syndicated facility. An additional $100 million may be disbursed in June 2023, bringing the total syndicated facility to $900 million,” the National Treasury said in a statement last month.
This brings the country’s debt to over Sh10.027 trillion, in breach of the Sh10 trillion debt ceiling for the 2022/23 financial year.
The public debt ceiling is enshrined in the Public Finance Management Act of 2012, with Section 50(2) of the Act limiting the national government’s borrowing to a limit set by Parliament.
However, the Treasury sought to amend the Act last year to allow the government to exceed the limit in special circumstances.
The Public Finance Management (Amendment) Bill, 2022, which was tabled in Parliament by then National Assembly Majority Leader Amos Kimunya, would have given the Treasury leeway to exceed the limit in the event of fiscal disruptions such as war, natural disasters and health pandemics.
However, MPs last month approved the conversion of Kenya's debt ceiling from Sh10 trillion to a debt anchor as a percentage of gross domestic product (GDP), in line with the International Monetary Fund’s push.
The Public Debt and Privatisation Committee approved the debt anchor threshold at 55 per cent of GDP in present value terms. However, the committee provided a window of no more than five per cent to accommodate the current debt to GDP threshold of 60 per cent.
“The committee recommends that the debt threshold should be a debt anchor of 55 per cent and should not exceed plus five per cent of gross domestic product in present value terms,” Mr Makali Mulu, the committee's deputy chairman, said in a report.
The committee also removed a clause that would have required the Treasury CS to give an explanation to Parliament if the Treasury breached the debt anchor through excessive borrowing.
The breach of the debt ceiling comes as President William Ruto faces a major debt headache in his maiden budget in which he plans to spend about Sh3.68 trillion.
In the new financial year, the government expects debt servicing costs to rise by 30 per cent to Sh1.8 trillion from Sh1.38 trillion in FY2022/23.
This means that without refinancing some of the major debt maturing in FY2023/24, debt servicing could account for half of planned expenditure or 70 per cent of projected tax revenue of Sh2.57 trillion.