Treasury proposes changes to raise unsustainable debt ceiling

National Treasury Cabinet Secretary Ukur Yatani is seeking powers from the National Assembly to increase Kenya’s public debt ceiling which he says is not sustainable.

Through the proposed amendments to the Public Finance Management Act, 2012, CS Yatani is seeking the removal of the PFM Debt Ceiling of Kshs. 9 trillion which is expected to be breached in the near term amid a widening deficit projected at Kshs. 846 billion in the financial year 2022/2023.

Under the new amendments, CS Yatani proposes for deletion of the ceiling as public debt load has already breached the 55% threshold which has been proposed by Treasury.

The new amendment should it be passed, will give the CS powers to write to parliament explaining what circumstances have led to the breach of the limit and provide a time-bound remedial plan.

In justifying the proposals, Yatani says, “To conform with the international best practice in setting debt limits (setting debt limits on the basis of payment capacity (GDP)). Further to this, there are circumstances under which the debt limit may be exceeded such as depreciation of the shilling, significant balance of payment imbalances or abrupt fiscal disruptions and therefore there is need to address such eventualities in law.”

Latest data from the Central Bank of Kenya indicate that the country’s public debt stood at Kshs. 8.2 trillion as of December 2021, comprising Kshs. 4 trillion in domestic debt and Kshs. 4.2 trillion in external debt.

Treasury is also proposing that financial obligations attendant to loans raised or guaranteed and securities issued or guaranteed are maintained at a sustainable level as advised by the Public Debt Management Office and approved by Parliament for the national government and by the county assembly for county government.

“Currently the debt limit approved by Parliament is not anchored on sustainability. There is, therefore, need for Parliament to be advised on the sustainable debt levels as they set the public debt limit,” added Yatani.

The new proposals will also see other financial obligations resulting from the debt obligation including fees, commissions, charges, and other expenses such as insurance, legal fees paid through the Consolidated Fund.

National Treasury is now calling for public input on the Public Finance Management (Amendment) Bill, 2022, the Public Finance Management (National Government) (Amendment) Regulations, 2022 and the Public Finance Management (County Government) (Amendment) Regulations, 2022 to be submitted by the close of March 15, 2022.