Parliament has approved the conversion of Kenya’s Sh10 trillion debt ceiling with a debt anchor as a percentage of gross domestic product (GDP), fulfilling a promise to the International Monetary Fund (IMF) by the previous administration.
The National Assembly’s Public Debt and Privatisation Committee has approved the setting of the debt threshold at 55 per cent of the GDP in present value terms.
The committee has, however, provided a window not exceeding five per cent to accommodate the current debt threshold to GDP which stands at 60 per cent.
“The committee recommends that the threshold for debt shall be a debt anchor of 55 per cent and shall not exceed plus five per cent of GDP in present value terms,” Mr Makali Mulu, the vice chairperson of the committee, said in a report.
The committee has deleted a clause that sought to create a provision for the Cabinet Secretary in charge of the National Treasury to provide an explanation to Parliament in case the Treasury breaches the debt anchor through excessive borrowing.
The MPs last evening approved the Public Finance Management (Amendment) Bill, 2023 through its Second Reading. President William Ruto’s Cabinet in March gave a nod to the National Assembly to move the debt ceiling from the current limit of no more than Sh10 trillion to a debt anchor set at 55 per cent of GDP in present value terms.
The new ceiling means that the government is already in breach, given that Kenya’s debt is above 70 per cent of GDP and the new administration will now be forced to find means to walk the country backwards through growing the economy and slowing down the uptake of new loans.
“The Bill seeks to amend the Public Finance Management (PFM) Act, 2012 by adjusting the framework for monitoring of public debt and borrowing,” the report notes. Notably, the bill seeks to amend the Act to address the matter of a public debt ceiling by introducing a threshold.”
The committee said the borrowing room will be insufficient to finance the budget estimated to amount to Sh718.4 billion and, without any amendments, the debt limit will be breached in the course of the financial year 2023/24. Parliament has approved President Ruto's administration's first Sh3.6 trillion budget and without the House amending the debt ceiling, Treasury will be forced to cut the budget estimates to conform with the nominal cap of Sh10 trillion.
Majority Leader Kimani Ichung’wah asked MPs to approve the debt anchor arguing the Treasury is already working on debt liability management to retire the Sh241 billion Eurobond that matures in June next year.
With a debt anchor, Kenya’s debt limit will now become a moving target from an absolute figure with the present value of debt as a percentage of GDP expected to represent the current debt value in contrast to the current value of future cash flows.