MPs slam brakes on borrowing plans amid debt ceiling review

Kenya's public debt stood at Sh9.15 trillion as at last December, just shy of the ceiling. [iStockphoto]

A parliamentary committee wants the Sh10 trillion debt ceiling retained for the current financial year, putting Treasury's borrowing plans in limbo.

The National Assembly's Select Committee on Public Debt and Privatisation says in a newly published report that any fresh borrowings by the Ruto government should be capped within the ceiling.

"Any borrowing undertaken by the National Treasury in the financial year 2023/24 should not exceed the Sh10 trillion limit approved debt ceiling by Parliament," says the committee's recommendations in their report on the Treasury's 2023 Medium Term Debt Management Strategy.

The committee report says that National Treasury data shows Kenya's public debt stood at Sh9.15 trillion as of December 2022, just shy of the ceiling.

This comprised Sh4.47 trillion in domestic debt and Sh4.67 trillion in external debt.

Treasury data shows, that given the estimated fiscal deficit of Sh833 billion for the financial year 2022/23, it is projected that by June 2023, the total debt stock will amount to Sh9.42 trillion with the window for more borrowing without breaching the curbs shrinking.

Parliament had in June 2022 set the Sh10 trillion debt ceiling to enable the new government to fund its programmes fully.

In the financial year 2023/24, the deficit is projected at Sh720 billion, data shows, with the borrowing space available shrinking to less than Sh587 billion.

President Ruto's administration recently laid out plans for Parliament to replace the current public debt limit of Sh10 trillion with a debt anchor hinged on the Gross Domestic Product (GDP).

"In keeping with the global best practice on debt limit policy, and in furtherance of the administration's quest to realise inter-generational equity through sustainable debt management, Cabinet considered the legislative proposal to harmonise the definition of 'Public Debt' in the Public Finance Management Act, 2012 and the attendant Regulations with the spirit and letter of Article 214 (2) of the Constitution of Kenya," said a Cabinet brief from State House recently.

"In that regard, Cabinet approved the transmittal to Parliament of the legislative proposals replacing the nominal debt ceiling of Sh10 trillion with a debt anchor set at 55 per cent of GDP in present value terms."

The Commission for Revenue Allocation (CRA) had recently warned the country is set to breach its Sh10 trillion debt ceiling - with Kenya's financial stability at stake.

The CRA had said that Treasury projections show the country's total stock of public debt to be Sh10.133 trillion in the financial year 2023/24. The Sh10 trillion debt ceiling, which Parliament established, is the maximum amount the government can borrow. It's a limit on the national debt.

If the debt ceiling isn't raised, further borrowing will not be possible dealing a blow to Treasury's plan to raise debt to fund national programmes. President Ruto's administration is targeting borrowing Sh3.6 trillion in his first five-year term.

This comes at a time when the Treasury is trying to balance its debt portfolio, which is fast approaching the allowed Sh10 trillion limit after expensive commercial debts piled up, taking up more than 60 per cent of tax revenues.

The Committee says Treasury should adopt hedging mechanisms on foreign exchange risks and negotiate lending agreements in Kenya shilling in order to safeguard against shocks with regard to external interest payments.