More pain as debt ceiling revised to Sh1.2t

By John Oyuke

Parliament has voted to raise Kenya’s debt ceiling – the amount of money Government is authorised to borrow at any given time – to Sh1.2 trillion.

The Tenth Parliament approved the increase of total external indebtedness from Sh800 billion to Sh1.200 billion before winding up on Thursday.

In 2009, the Government revised the ceiling of external indebtedness from Sh500 billion to Sh800 billion.

At the time of setting the new ceiling, the Government’s external debt stood at Sh771 billion, hence the need to increase the ceiling.

Finance Minister Njeru Githae said what this means is that the total debt is very close to the ceiling of Sh800 billion and could not secure the desired funding to spur growth. He attributed this partly to the depreciation of the shilling against the major currencies, which dominates the country’s debt portfolio.

“For instance, against the US dollar, the Kenya shilling depreciated by 10 per cent moving from Sh78 in June 2009 to Sh86 currently. It is therefore necessary to raise the ceiling to comply with the law,” he said.

Githae said the ceiling would also accommodate new programmes and project loans to be borrowed over the next five years of the medium term plan – 2013 to 2017 – and under the second plan under Vision 2030.

Githae said as part of efforts to sustain economic growth over this period and fight against poverty, the Government has through the Medium Term Fiscal Framework identified projects that will need to be undertaken and funded.

“We need to borrow externally about Sh350 billion over the next five years and we need this money to finance them,” he added.  The minister explained that the increase would cater for possible cross currency fluctuations of about Sh50 billion.

 The national debt ceiling is a level imposed by Parliament on how much debt the Government can hold

Without a new debt ceiling, the Government lacks the ability to borrow to pay the debt it already has incurred and owes. It could be forced to determine an order on who gets paid first, in the event no deal is reached.

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