MPs want State borrowing capped at Sh400b a year

Parliament in previous session. [Elvis Ogina, Standard]

Members of Parliament have proposed that borrowing in a financial year be capped at Sh400 billion or 3.2 per cent of the gross domestic product (GDP).

In a report tabled on February 15, the National Assembly Budget and Appropriations Committee said the country’s budget hole of Sh846 billion was likely to breach the Sh9 trillion debt ceiling.

“It is forecasted that by end of June 2022 the stock of debt will amount to Sh8.6 trillion, which means that the only amount available for the next financial year without an amendment of the ceiling will be Sh400 billion,” said the report on the 2022 Budget Policy Statement which covers the next three financial years.

“The committee, therefore, recommends that the overall deficit be limited to Sh400 billion.”

Where the Sh400 billion deficit is high, then the National Treasury will only borrow an amount equivalent to three per cent of the GDP, or the total value of all goods and services produced in the economy.

The proposal, however, comes at a time when Treasury has already written to the Clerk of the National Assembly expressing its intention to abandon the current Sh9 trillion legal debt ceiling and adopt one pegged on GDP.

Instead, Treasury wants to replace the ceiling with a medium-term debt-to-GDP anchor of 55 per cent of GDP in present value terms, that is discounting for low interest.

In addition to cap fiscal deficit at Sh400 billion, the committee, which is chaired by Kieni MP Kanini Kega, proposed a budget ceiling of Sh1.63 trillion for the national government.

The executive takes a lion’s share of this allocation, getting Sh1.56 trillion, Parliament Sh50.2 billion and Judiciary 18.9 billion in the recommendation.

The equitable share for counties remains at Sh370 billion.