MPs pass Budget to avert election funding crisis

Members of Parliament follow proceedings as National Treasury Cabinet Secretary Ukur Yatani unveils the 2022/23 Budget on April 7, 2022.

The National Assembly has prevented a serious financial crisis after it voted to pass government estimates for the 2022/23 Budget, despite questions over financing.

The estimates are President Uhuru Kenyatta’s last before he retires after the August 9 General Election after serving his second and last term of five years.

The passage happened on Thursday last week when MPs, sitting in the Committee of Supply, approved the Sh2.1 trillion expenditure for the national government. The expenditure will, however, be actualised after the MPs have enacted the Appropriations Bill, 2022, to give the government the legal force to withdraw from the Consolidated Fund as appropriated by the House, to finance its recurrent and development obligations.

Of the amount, Sh1.39 trillion is in recurrent expenditure, with Sh715.35 billion allocated for the development budget. Failure to pass the Budget would have seen the country face the ignominy of not holding the polls because of the possibility of lack of funds.

In the approved estimates, Sh44.18 billion has been allocated for the direct and indirect financing of the general election.

At least Sh42 billion of the amount will be managed by the Independent Electoral and Boundaries Commission (IEBC).

The House leadership and the Parliamentary Budget Office (PBO), which advises Parliament and its committees on fiscal matters, have been burning the midnight oil assessing various ways of actualising the Budget amid the debt ceiling challenge.

At the centre of the expenditure plans lies the huge fiscal deficit of Sh846 billion, the Sh8.6 trillion in public debt, the Sh9 trillion debt ceiling and taxation measures.

While a section of the House leadership was of the opinion that the debt ceiling needs to be raised to allow the government to borrow more to finance the budget, others were adamant that the estimates be passed first.

Raising the debt ceiling first before adopting the estimates was seen as a longer and tedious route as it involved enacting the proposed amendments to the Public Finance Management (PFM) Act and the PFM (National Government) Regulations, 2015.

Debt ceiling

With the country’s debt ceiling set at Sh9 trillion as per the November 2019 amendment to the PFM (National Government) Regulations, 2015, the government can only borrow up to Sh400 billion or risk violating the limit.

This leaves a Sh446 billion development budget that is not financed. However, Leader of Majority Amos Kimunya (Kipipiri) told Sunday Nation that while the Budget deficit and the debt limit present real challenges to the country, the MPs had no choice but to adopt the estimates.

“We are aware of the challenges and action has been initiated to sort out the ceiling challenges,” he said. “The fiscal deficit issues will be addressed before and during the debate and processing of the Appropriation Bill, 2022.”

This means that the MPs must address the debt ceiling issue before they pass the Appropriation Bill or risk having an expenditure plan that is not adequately financed.

Alternatively, they can pass the Appropriation Bill without addressing the debt ceiling challenge, a situation that may lead to a supplementary budget I for 2022/23 to cut on government expenditures, including the National Government-Constituency Development Fund that is overseen by MPs.

The Public Finance Management (Amendment) Bill, 2022, and the draft Public Finance Management (National Government) Regulations, 2015, are critical to the financing of the expenditure plans.

The PFM (Amendment) Bill, 2022, currently before the Finance and National Planning Committee of the House, seeks to have the debt anchor in the law.

The Bill seeks to give the Cabinet Secretary in charge of the National Treasury a leeway to exceed the debt limit and only write to Parliament explaining circumstances that led to such.

“Provided that if at any time the public debt exceeds the limit and the regulations, the Cabinet Secretary shall provide Parliament with a written explanation and a time-bound remedial plan,” the PFM (Amendment) Bill reads.

The Bill goes on to list the circumstances that may lead to the breach of the limit. They include depreciation of the shilling, significant balance of payment imbalances or abrupt fiscal disruptions. The fiscal disruptions have been listed as war, health pandemics or natural disasters.

However, MPs argue that this proposal will effectively dilute the role of Parliament in regulating what is to be borrowed each financial year.

“This amendment is not proper as it reduces the House to a spectator role on a matter critical as public debt management. We may have to amend it,” said Nominated MP Godfrey Osotsi.

The draft PFM (National Government) Regulations on the other hand seek to change the debt ceiling from a numerical figure of Sh9 trillion to 55 percent of the Gross Domestic Product (GDP) in net present value.

Tiaty MP Kassait Kamket, who chairs the National Assembly Committee on Delegated Legislation that is considering the amendments to PFM regulations, at a meeting with National Treasury Cabinet Secretary Ukur Yattani recently, questioned the decision to have the two sets of laws considered at the same time.

“The draft regulations we are considering seek to implement the PFM Bill which, interestingly, has not been legislated. So how do we proceed from here, CS?” posed Mr Kamket (Tiaty).

“Parliament does not legislate in vain. Parliament should not be a repository of reporting the National Treasury breaches of the law,” Mr Kamket added.

What made the proposal to have the debt ceiling reviewed first before passing the estimates untenable is the fact that the two sets of laws critical to amending the debt limit require the approval of the National Assembly and the Senate.

Currently, the National Assembly is in session and is expected to adjourn Sine die on June 9, 2022 ahead of the general election campaign period.

The Senate is currently on recess and expected to resume normal sittings on June 7, 2022 before adjourning Sine die on June 16, 2022, a week later.

A proposal to extend the calendar of the National Assembly by a week was withdrawn after MPs threatened to shoot it down, further complicating the budget making process.

This means that the two Houses of parliament have little time left to consider reviewing the debt ceiling before winding up.

The proposal to review the House calendar was mooted by Speaker Justin Muturi on grounds that because parliament in the duality of the National Assembly and Senate, “it will not be good for one House to adjourn Sine die while the other remains to transact business.”

In the event that for instance, the two Houses fail to agree on the PFM Bill 2022, a mediation committee will be established to come up with a mediated version of the Bill.

A mediation committee has 30 days to conclude its mediated version of the law, meaning that by the time the committee is concluding its work, parliament will have already adjourned.

In the event that the 30 days elapse without the committee agreeing on the mediated version, the Bill will stand lost and can only be introduced after six months- effectively in the next parliament, throwing the government into disarray how it will finance the 2022/23 budget.

The only option available will be supplementary budget I for 2022/23 to slash the government expenditures.

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