Today's Paper
You are here  » Home   » Business News

Treasury opens window wider for borrowing

By Otiato Guguyu | Published Wed, May 30th 2018 at 00:00, Updated May 29th 2018 at 23:09 GMT +3
Kenya currently owes Sh4.56 trillion which is taking up a huge chunk of dollars from exports. [Courtesy]

Treasury is once again seeking Parliament's nod to reduce the Government's debt by half.

The latest initiative does not involve paying off the debt, but changing the law to create room for the Government to borrow more.

Treasury wants a change to the Public Finance Management (PFM) Act that would put limits on foreign borrowing only. This would lower Kenya's percentage of debt to Gross Domestic Product (GDP) from the current 49 per cent to 25 per cent.

This would effectively offer the Government more room for borrowing.

"We are asking for an amendment of the PFM Act to classify only external public guarantee debt to be considered as the ceiling for the purposes of the World Bank Country Policy and Institutional Assessment,” Treasury PS Kamau Thugge said.

Dr Thugge said Kenya’s current total debt to GDP stands at 49 per cent, which is still short of the World Bank's recommendation of 74 per cent, the level at which the institution considers debt to be risky.

While Treasury maintains the debt is manageable, pressure to pay the current Sh4.56 trillion the country owes is taking up a huge chunk of the dollars from exports.

Avoid becoming a victim of Fake News. Subscribe to the Standard Group SMS service by texting 'NEWS' to 22840.

He said Kenya's revenue to debt was at 240 per cent, which is just shy of the 300 per cent debt to export revenue threshold.

If Parliament passes the amendment, it will be the second time it is giving the Executive more power over debt levels, and reducing its control of how much Kenya can borrow.

Huge appetite

President Uhuru Kenyatta’s administration has been accused of a huge appetite for debt to a point it borrows more money to pay off other debts and shifting goalposts on debt sustainability.

"This issue of borrowing to retire your debt is how countries operate. You have maturities that fall due over and over. That is how you do liability management," Thugge said recently when questioned over changing debt ceiling.

It is worth noting that within just nine months in power, the Jubilee administration had crossed the Sh2 trillion mark, from Sh1.7 trillion they inherited from President Kibaki in March 2013.

In 2014, the Government increased the external borrowing ceiling by Sh1.3 trillion to Sh2.5 trillion and pushed up the total debt to Sh2.4 trillion. In 2015, the Government hit another milestone when it crossed the Sh3 trillion mark.

Currently, Kenya’s total debt, both domestic and foreign, stands at Sh4.6 trillion.

Two crucial legislative changes on debt were made during the Jubilee administration's reign. Initially, Parliament set the ceiling on how much Treasury can borrow. But this was changed to give the Executive powers to set its debt target that is brought before Parliament for approval.

Progressively, the country moved away from that to the best practice where the ceiling is a proportion of the size of the GDP rather than setting debt ceiling annually by coming to Parliament for review.

The new initiative will allow the Government to borrow externally up to 50 per cent from the current 25 per cent, while domestic debt will be considered as a separate unit of the debt portfolio.

Thugge, however, said Kenyans should not be worried that the Government wants to borrow more since there are plans to reduce the shortfall between revenues and expenditure by a third.

“Last year, the fiscal deficit stood at nine per cent and this year we project it will come down to 7.2 per cent and lowered to 5.7 per cent in 2018-19,” said Thugge.

“We intend to eventually bring it down to three per cent and that I think is where we will be comfortable,” said Thugge when he appeared before the parliamentary committee yesterday.

Would you like to get published on Standard Media websites? You can now email us breaking news, story ideas, human interest articles or interesting videos on: [email protected]