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Parliament approves conversion of Kenya’s debt ceiling to be anchored to GDP

Parliament approves conversion of Kenya’s debt ceiling as capped at KSh10trn to be anchored to GDP.

The final barrier preventing Kenya from complying with international best practices supported by the International Monetary Fund (IMF) has been removed with MPs’ approval of the conversion of Kenya’s debt ceiling from the present Sh10 trillion to a debt anchor as a percentage of gross domestic product (GDP).

The level of the debt anchor, set at 55 percent of GDP in present value terms, was accepted by the Public Debt and Privatization Committee. 

To account for the present debt to GDP threshold, which is set at 60%, the committee has created a window not to exceed 5%.

“The committee recommends that the threshold for debt shall be a debt anchor of 55 percent and shall not exceed plus five per cent of the gross domestic product in present value terms,” 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 Treasury Cabinet Secretary to provide an explanation to Parliament in the case the Finance ministry breaches the debt anchor through excessive borrowing.

The parliament on Thursday evening approved the Public Finance Management (Amendment) Bill 2023 through its Second Reading.

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In March, the National Assembly received approval from President William Ruto’s Cabinet to raise the debt ceiling from its existing cap of Sh10 trillion to an anchor set at 55 percent of GDP in present value terms.

Given that Kenya’s debt is over 70% of GDP, the new ceiling indicates that the government is already in breach, and the new administration will now be compelled to find ways to drag the country backward by expanding the economy and cutting down on new loans.

“The Bill seeks to amend the Public Finance Management 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 amendment is supported by the lack of fiscal space to finance the 2023/24 and the medium-term expenditures.

“As at the end of March 2023, public debt amounted to Sh9.39 trillion and is forecasted to range between Sh9.6 trillion by end of June 2023,” said Mr Mulu in the report.

“Given the current stipulated public debt ceiling of Sh10 trillion, the borrowing space to finance the 2023/24 budget estimates is projected to be less than Sh300 billion.”

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