Tough options for next regime as Senate okays Sh10tr debt ceiling

A woman walks past Parliament Buildings, Nairobi. [Elvis Ogina, Standard]

The Senate's decision to raise the debt ceiling from Sh9 trillion to Sh10 trillion now puts President Uhuru Kenyatta in a tight spot as to how the Jubilee government will repay the borrowed cash.

Last evening, the senators unanimously voted to raise the debt ceiling giving the National Treasury room to borrow up to Sh1.4 trillion in the next two years.

President Kenyatta is expected to ascent to the Bill anytime from today.

The National Treasury while seeking to have the debt ceiling approved noted that the next administration is expected to implement the Sh3.33 trillion budget for the financial year 2022-23.

The next administration is expected to start off with a budget deficit of Sh864 billion, which would push the country's total debt to around Sh9.5 trillion.

Senators passed the state-sponsored Bill with 27 ayes and 3 nays approving the amendment made to the Public Finance Management (National Government) Regulations 2015 (principal regulations) in regulation 26(1), by deleting paragraph (c) and substituting the following paragraph: “(c) pursuant, to provisions of section 50(2) of the Act. The public debt shall not exceed Sh10 trillion.”

The Treasury Cabinet Secretary Ukur Yatani had published a gazette notice to amend Section 26 of the Public Finance Management Act, 2015 to raise the debt ceiling, even as he pushed a separate Bill to amend the Public Finance Management Act to change the debt cap to a percentage of GDP from the current ceiling.

According to the Treasury projections contained in the Budget Policy Statement, the current government is expected to clock the Sh8.6 trillion mark by end of the current financial year ending June 30.

Treasury CS Ukur Yatani (left) with Budget and Appropriation Committee Chairman Kanini Kega at Parliament Buildings, Nairobi. [Elvis Ogina, Standard]

Already they have hit the Sh8.4 trillion as of March indicating that the remaining Sh200 billion could still have been arrived at by the time the August polls are conducted.

In the first four months of this year, the National Treasury inked debt deals amounting to Sh400 billion and had already received Sh200 billion which means that it has reached its target for the financial year.

In the Treasury's projections, the next president will have to raise the debt ceiling within the first two financial years with Sh10 billion ceiling raised by the Senate on Tuesday being arrived at by the 2023/2024 financial year.

During his last Madaraka day celebrations on June 1 President Kenyatta defended the government's borrowing and asked his would-be successor not to shy from using ‘other people’s money’ to maintain the tempo of our accelerated achievements.

"Debt, in a cleaned-up government, is an enabler, not a burden," he said.

"The second lesson that will keep our accelerated achievements afloat has to do with debt. And on this, I want to pose a National Question: How much is ‘too much’ borrowing? When does borrowing become ‘too much' and unbearable to a nation?" Posed President Kenyatta.

The Head of state said the only time that debt is a burden to a nation is if the nation is led by a cabal of looters but in a clean government, borrowing would be a 'catalyst for rapid development' and gave the example of South Korea and how it achieved its economic ‘miracle’ in a record 25 years and it also achieved the rank of being the 4th most indebted country in the world.

"And the national question to us today is not whether the debt is good or bad. The more legitimate question has to do with what the next administration will do with borrowed funds.  Will they end up in private pockets or will they be used to accelerate economic advancement?" Posed Uhuru.

"We used ‘other people’s money to close our infrastructure gap and to connect our markets," he added.

When President Uhuru Kenyatta took over from the late former President Mwai Kibaki the public debt was at Sh1.8 trillion which was around 42.8 percent of the country's annual productivity.

When the Kibaki took over from the late former President Moi the country's public debt was about Sh630 billion in 2002 while his predecessor Mzee Jomo Kenyatta left it at Sh1.17 billion by the time he died in 1978. 

Deputy President William Ruto has vowed to authorize an investigation into the debt accrued particularly during the handshake period since 2018 where he claims government borrowing became unsustainable.

As of December 2021, Kenya's gross public debt stood at Sh8.2 trillion against the country's nominal GDP estimated at Sh10.7 trillion

Azimio la Umoja presidential candidate Raila Odinga has indicated that he was not avast to borrowing, and would seek to restructure public debt to avoid the burden on the government's service delivery.