President William Ruto's administration has 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 realize inter-generational equity through sustainable debt management, Cabinet considered the legislative proposal to harmonize 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.
"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.
Kenya’s stock of public debt currently stands at Sh9.145 trillion according to the Central Bank of Kenya (CBK).
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 after it's breached 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.
National Treasury Cabinet Secretary Prof Njuguna Ndung’u earlier maintained the State will opt for direct concessional budget funding from multilateral lenders instead of expensive domestic and foreign commercial debt.
For new loans, his government will strive to borrow at “favourable rates, negotiate repayment periods that are not stressful, and invest in enterprises that give good socio-economic returns.”
Prof Ndung’u said recently that reliance on institutions like the International Monetary Fund (IMF) and the World Bank in the medium term to bridge the budget deficit would help reduce debt vulnerabilities.