Ruto’s cabinet replaces the KSh10trn debt ceiling with the percentage of GDP
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Ruto's cabinet ditches the KSh10trn debt ceiling with the percentage of GDP; Gross Domestic Product
Ruto’s cabinet ditches the KSh10trn debt ceiling with the percentage of GDP; Gross Domestic Product.
In accordance with a pledge given to the International Monetary Fund (IMF) by the previous administration, President William Ruto tried to replace the Sh10 trillion public debt cap with a debt anchor as a percentage of gross domestic product (GDP), but the House rejected it.
The National Assembly received approval from the Cabinet on Tuesday to change the debt ceiling from the current cap of Sh10 trillion to a new debt anchor set at 55% of GDP in present value terms.
Since that Kenya’s debt is over 70% of GDP, the new ceiling indicates that the government is already in violation, and the incoming administration will now be compelled to find ways to drag the country backward by expanding the economy and easing the restraints on new loans.
Although Kenya has not yet disclosed its 2022 GDP estimates, based on those from 2021, the nation’s total public debt should be Sh6.6 trillion to comply with the new metric.
Kenya, however, previously exceeded the Sh9 trillion threshold in December, exceeding the new cap by a significant margin.
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.
In a Cabinet memo on Tuesday, the government argues the shift to the debt anchor aligns with global standards and that it ensures the sustainability of Kenya’s debt stock.
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“In keeping with the global best practice on the debt limit policy, and in furtherance of the administration quest to realize inter-generational equity through sustainable debt management, Cabinet considered the legislative proposal to harmonize the definition of public debt and the attendant regulations,” the Cabinet stated in part.
The new push to adjust the debt ceiling also comes in less than a year since the nominal debt ceiling was pushed from Sh9 trillion to Sh10 trillion last June in what was interpreted as an interim measure to accommodate the deficit financing to the 2022/23 budget to June this year.
Additional data from the Treasury’s 2023 Budget Policy Statement shows the size of public debt was on course to surpass the Sh10 trillion debt limit by June next year at Sh10.133 trillion.
Former Treasury Cabinet secretary Ukur Yatani had promised to replace the debt ceiling with a percentage measure but this was rejected by the then parliament, instead choosing to increase the ceiling to Sh10 trillion.
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