Treasury law change ups public debt cap to Sh9trn

Treasury has announced plans to change the law and increase the cap for state borrowing to Sh9 trillion, offering it leeway to jerk up the mounting public debt.

Acting Treasury Cabinet Secretary Ukur Yatani is this week expected to make public a notice that seeks to amend that law that restricts public debt at half of gross domestic product (GDP).

The change will allow the Treasury to borrow more in line with its target of increasing public debt to Sh9.1 trillion in the year starting July 2023 from Sh5.7 billion in June.

There has been a jump in government borrowing since President Uhuru Kenyatta came to power in 2013 – a rise that some politicians and economists say is saddling future generations with too much debt.

“Public Finance management regulations 2015 are amended in regulation 26 (1) subparagraph c by deleting the words 50 per cent of gross domestic product in net present value terms and substituting thereof with the words nine trillion shillings,” the notice signed by Mr Yatani says.

Kenya’s public debt as a percentage of GDP has increased to 55 percent from 42 percent when Mr Kenyatta took over.

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

Treasury’s move to amend the PFM Act come amid debate in Parliament to cap borrowing at Sh6 trillion via a Bill sponsored by Emgwen MP Alexander Kosgey.

The Bill demands Treasury seeks parliamentary approval before borrowing.

“In seeking approval to borrow under section 3 the Cabinet Secretary shall submit to the National Assembly the intended purpose for the borrowing and envisaged repayment plan,” says the Bill.

Mr Kosgey said the Treasury has been using a complex formula to defend huge borrowing that is driving the country into a debt trap.

Analysts have termed Kosgey’s Bill unrealistic.

“First we must look at whether the Sh6 trillion debt cap is realistic in the context of our current debt levels,” said Renaldo D’Souza, a research analyst at Sterling Capital.

Treasury expects public debt to rise to Sh6.4 trillion by June next year, from Sh1.89 trillion in June 2013.

The increased debt has seen Kenya commit more than half of its taxes to repaying loans, leaving little cash for building roads, affordable housing and revamping the health sector.

In the year ended June, Kenya spent Sh826.20 billion on debt repayments or 55.4 percent of the Sh1.49 trillion tax collected in the period. It spent Sh306.52 billion on projects, accounting for 14.20 percent of the Sh2.16 trillion total national government expenditure.

Public debt stood at Sh5.81 trillion in June 2019, up from Sh5.04 trillion a year earlier, Sh4.41 trillion in June 2017, Sh3.62 trillion in June 2016, Sh2.83 trillion in June 2015, Sh2.37 trillion in June 2014 and Sh1.89 trillion in June 2013.