Parliament seeks powers for government loan approvals

The Treasury will have to seek approval of MPs for State loans if a proposed law that seeks to curb the ballooning public debt is adopted.

The Public Finance Management (Amendment) Bill, 2020, require that the national government shall only borrow money for the budget approved by the National Assembly and for allocations of loans approved by the National Assembly.

The planned restriction come months after MPs approved the raise in government’s debt ceiling to Sh9 trillion, as authorities abandon a limit pegged to the GDP to create room for fresh borrowings.

Critics have accused President Uhuru Kenyatta’s government of ramping up borrowing at a rate that will saddle future generations with too much debt.

“The Bill further seeks to amend the Act to require the approval of the National Assembly on borrowing and guaranteeing of loans by the national government,” says the proposed law.

“In guaranteeing and borrowing money, the national government shall ensure that it’s financing needs and payment obligations are met at the lowest possible cost in the market which is consistent with a prudent degree of risk, while ensuring that the overall level of public debt is sustainable.”

The Bill is sponsored by Majority Leader Aden Duale.

Total public debt rose to 62.3 percent of the gross domestic product in June last year, the World Bank, having breached the recommended threshold 50 percent of GDP in the 2015/16 financial year.

The government has defended the increased borrowing, saying the country must invest in its infrastructure, including roads and railways.

The Treasury secretary will be required to disburse proceeds of the loan directly to the suppliers where the loan is a government to government loan and is raised for the purpose of financing goods and services provided by a supplier outside Kenya.

Kenya has been forced to confront the ballooning public debt after embarking on a borrowing binge in the past year to splurge on various infrastructure projects, including a railway funded by China.

The government desperately needed the approval to increase of debt ceiling to Sh9 trillion to prevent it from running out of funds during this fiscal year, and allow the State to restructure the portfolio by replacing expensive commercial debt with cheaper funds from institutions like the World Bank.

The Treasury projects that total public debt will rise to Sh9 trillion shillings by June 2024.