Treasury to bypass Parliament in proposed borrowing changes

 

The National Treasury building, Nairobi [Elvis Ogina, Standard]

The National Treasury is plotting to bypass MPs in its borrowing plans through proposed changes to the Finance Act.

The MPs will be left to play the role of rubber-stamping borrowing decisions already made by the government as part of sweeping recommendations that will also see the country abandon the Sh9 trillion debt ceiling.

Treasury will now shift to an anchor of 55 per cent of gross domestic product (GDP) in net present value (NPV) terms.

As opposed to the current case where Treasury is barred from exceeding Sh9 trillion debt ceiling, the Exchequer might have the window to over-borrow as long as it gives Parliament a plausible explanation.

Reasons that it might offer include depreciation of the shilling, unexpected spending due to unforeseen factors such as drought or pandemics. “The Cabinet secretary shall provide Parliament with a written explanation on the said circumstances leading to the breach of the limit and provide a time-bound remedial plan,” reads part of the Public Finance Management (Amendment) Bill, 2022.

If passed, the regulations will give President Uhuru Kenyatta’s government - and particularly the next - more leg room to continue the binge borrowing that started around nine years ago.

The government insists that pegging public debt to GDP (monetary value of all products in the economy) is an international best practice. It is also part of the Extended Fund Facility (EFF) and the Extended Credit Facility (ECC) that the government has with the International Monetary Fund (IMF).

“The credibility of this new framework will anchor expectations for all stakeholders around the government’s intended debt reduction path and will benefit from our commitments under the EFF/ECF-supported programme with IMF,” Treasury told IMF.

Interestingly, as at the end of June 2021, Kenya’s debt to GDP in NPV terms was at 59 per cent, which means that it has already surpassed the legal threshold.

The NPV of debt at the time of its signing date of an underlying loan agreement is calculated by discounting the future stream of payments of debt service due on this debt, according to the IMF.

By end of 2021, Kenya’s public debt stood at Sh8.2 trillion, just Sh800 billion shy of the legal ceiling.

MPs had proposed to cap the State’s borrowing for the financial year starting July to Sh400 billion, or 3.2 per cent of 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 the only amount available for the next financial year without an amendment of the ceiling will be Sh400 billion,” said the report.