Kenya breaches statutory debt ceiling of KSh10trillion
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Kenya breaches statutory debt ceiling of KSh10trillion even as parliament approves the conversion of debt to be anchored on percentage of GDP
Kenya breaches statutory debt ceiling of KSh10trillion even as parliament approves the conversion of debt to be anchored on percentage of GDP.
Even as debt payment expenses consume more than two-thirds of tax revenue, Kenya’s debt reached a record high of Sh10.027 trillion last week, exceeding the constitutional debt maximum established at Sh10 trillion by Members of Parliament last year.
Kenya has been on a borrowing binge lately, prompting the government to cut spending through two supplemental budgets as tax income collection has fallen far short of expectations in spite a slowing economy.
The Central Bank of Kenya (CBK) revealed data on Friday showing that as of June 23, the country’s total domestic borrowing had reached Sh4.711 trillion and its total external debt had reached Sh5.092 trillion.
The Public Finance Management Act of 2012 established the public debt ceiling by limiting national government borrowing to a cap determined by Parliament in Section 50(2) of the Act.
To allow the government to go above the limit in certain situations, the Treasury attempted to modify the Act last year.
Amos Kimunya, the then-majority leader of the National Assembly, introduced the Public Finance Management (Amendment) Bill, 2022, which would have allowed the Treasury to go above the cap in the case of “scal disruptions” like war, natural catastrophes, and pandemics.
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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.
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 finanancial 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.
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