The National Assembly yesterday agreed to raise the debt ceiling to Sh10 trillion in what is aimed at giving the National Treasury head-room to borrow more.
With the current debt ceiling of Sh9 trillion, it means the country is Sh600 billion shy of breaching the limit with official data from the Central Bank of Kenya (CBK) showing the country’s public debt stood at Sh8.4 trillion by end of March.
The proposal by the National Treasury to push up the debt ceiling was, however, opposed by lawmakers allied to Deputy President William Ruto, who felt the changes only aggravate the country’s debt situation.
This came after the MPs, through a special Motion, amended the Public Finance Management (PFM) (National Government) Regulations of 2015, published as a legal notice number 89 of 2022. Initially, National Treasury Cabinet Secretary Ukur Yatani had proposed to shift the debt ceiling to an anchor of 55 per cent of the Gross Domestic Product (GDP) in net present value terms.
Law makers, however, disagreed with the proposal, forcing the National Treasury to revert to the debt ceiling. It is a decision that will not go down well with the International Monetary Fund (IMF) which had pushed Kenya to go back to an anchor of debt-to-GDP, describing it as the international best practice.
“Pursuant to the provisions of the PFM Act, this House approves the PFM (National Government) Regulations of 2022, by providing the public debt shall not exceed Sh10 trillion,” the adopted special motion read.
The next administration is expected to implement the Sh3.33 trillion budget for the financial year 2022-23, with the country expected to borrow close to Sh846 billion. Without raising the limit, it means the government would have struggled to fund debt driven projects without breaking the law.
While MPs led by Majority Leader Amos Kimunya (Kipipiri), Opiyo Wandayi (Ugunja), William Kamket (Tiaty) and Kanini Kega of Kieni supported the proposal to increase the country’s debt ceiling, the Ruto-allied MPs Kimani Ichung’wah (Kikuyu), John Kiarie (Dagoretti South) and Dr Robert Pukose of Endebess opposed. “People have talked about debt as if it’s evil. Debt becomes evil if it has been used for wrong reasons. I am looking at this debt cap increase as an interim measure. The administration coming in on August 9 should come back to this House and ensure our borrowing is at a percentage of GDP,” Kimunya said.
“I want to debunk the myth that borrowing is bad. As your GDP increases, so should your capacity to borrow,” the Kipipiri MP said.
Kamket, who chairs the Delegated Legislation Committee that considered the legal notice, told the House that as consultations were going on, it became clear to the committee that even the GDP in net present value was more complicated as there were conflicting figures. “It became necessary to move from a percentage of the GDP as MPs were uncomfortable with the ceiling based on the GDP ratio. People want to know the exact debt limit,” said Kamket.
However, Ichung’wah opposed the debt ceiling variation on account that it will overburden Kenyans who are already saddled with debts.
“Public debt is not something to justify to appease ourselves. As we lay more burdens to Kenyans, as a representative of the people, I vehemently oppose,” said Ichung’wah.
He added: “This huge variation is beyond what we have passed in our medium term. The CS should earmark for us the projects he intends to spend the money on. In our budget, there are no specific projects to be financed by the public debt. We spend money in non-priority areas.”
Ichung’wah warned the House that it would be a great disservice to Kenyans if the House approved the increase it would be akin to killing Kenyans.
“This country cannot pay its own debt. The National Treasury defaulted on its debt repayment obligations. It was forced to borrow from the local banks to repay the public debt.”
Kiarie, another Ruto ally, agreed with Ichungwah. “Borrowing is not a problem but the style in which the proceeds are used. The money we are borrowing cannot be accounted for. The cycle of debt is such that debt in times of boom can push the economy,” said Kiarie. “Any economic boom driven by debt is usually followed by a slump. Let’s say no to an increased debt ceiling.”
But Wandayi said the next administration that comes after the August 9, 2022 General Election needs to be facilitated to carry out its operations.
“Debt is not a burden, the most important thing is what you use it for. We must prepare the ground for the next administration to transact business. We are damn if we do, we are damn if we don’t- we are in a catch 22 situation,” said Wandayi.