MPs blame rising debt on fiscal indiscipline

Nairobi Expressway

Ongoing construction of the Nairobi Expressway.

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 The Parliamentary Budget Office (PBO) says that fiscal indiscipline at the National Treasury is the reason the country’s public debt has grown exponentially in recent past.

But even as the public debt continues to expand, PBO says Kenya has no option but to borrow more externally to finance the 2021/22 budget as the country experiences revenue constraints that existed even before Covid-19 made an unwelcome appearance.

However, to borrow more, the National Treasury has to get Parliament to amend the Public Finance Management Act (National Government) Regulations of 2015 to increase the debt ceiling from the current Sh9 trillion.

“There are serious credibility concerns on the National Treasury in fiscal management,” the report by the PBO says.

National Treasury Cabinet Secretary Ukur Yattani was not available to respond to the issues raised by PBO, which advises parliament on fiscal issues.

Debt ceiling

The concerns by PBO come even as the National Treasury plans to present its proposed amendments to the law to increase the country’s debt ceiling by Sh3 trillion.

In November 2019, Parliament amended the law to increase the country’s debt ceiling from 50 per cent of the gross domestic product (GDP) in the net present value (NPV) to a numerical figure of Sh9 trillion.

But as of September 2020, the country’s public debt stood at Sh8.41 trillion, meaning that the available borrowing space at the time was Sh590.92 billion shy from the debt limit.

With a budget deficit of Sh1.059 trillion in the current financial year’s Sh3 trillion budget, according to the 2020 Budget Review Outlook Paper (BROP), PBO’s fears are that the debt ceiling could be breached by June this year.

“Given the prevailing budget deficit, the projected breach of the debt limit is likely to be at the end of June 2020/21,” PBO warns .

Section 50 (2) of the PFM Act, 2012, provides that the national government may borrow money in accordance with the law and shall not exceed a limit set by Parliament.

Foreign borrowing

In 2014, before the PFM Regulations were in place, Parliament approved an increase in the ceiling for external debt from Sh1.2 trillion to Sh2.5 trillion through Sessional Paper No. 14.

The 2020 BROP notes that the net domestic and foreign borrowing to finance the 2020/21 budget is estimated to hit more than Sh1 trillion.

The paper estimates that domestic borrowing will increase from the earlier projected Sh494 billion to Sh600 billion with the foreign financing adjusted upwards from Sh347 billion to Sh402 billion.


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