OVER-EXTENDED

Cap state borrowing at Sh6 trillion — MP

Bill would require Treasury to seek National Assembly approval before taking a loan

In Summary

• Government has been taking advantage of no limits to borrow excessively, says MP.

•  Treasury only Sh93 billion short of breaking the proposed borrowing cap, having committed to borrow Sh507 billion to bridge the 2019-20 budget deficit.

Emgwen MP Alex Kosgey at Parliament Buildings
Emgwen MP Alex Kosgey at Parliament Buildings
Image: FILE

A legislator is proposing to tame the state's appetite for borrowing by capping the public debt at Sh6 trillion.

Emgwen MP Alex Kosgey, in proposed changes to the Public Finance Management Act, also wants the Treasury CS barred from borrowing without the approval of the National Assembly.

The new cap, if approved, would mean that President Uhuru Kenyatta’s administration might not borrow more funds in the near future.

The Public Finance Management (Amendment) Bill, 2019, has been tabled for the First Reading.

The National Treasury is now only Sh93 billion short of breaking the proposed borrowing cap, having committed to borrow Sh507 billion to bridge the 2019-20 budget deficit.

Central Bank data shows that as of March, Kenya had Sh5.4 trillion debt, of which Sh2.7 trillion was borrowed externally and Sh2.7 trillion from domestic sources.

The debt, above the 60 per cent to the GDP ratio, is twice as high as the Sh2.5 trillion borrowing cap in the Public Finance Management Regulations, 2014.

Section 50 (2) of the PFM Act states that the national government may borrow in accordance with the Act and shall not exceed a limit set by Parliament.

The law does not define the limit, hence borrowing is subject to abuse, Kosgey and others say.

The International Monetary Fund recommends a 40 per cent debt to GDP ratio fo a developing country.

In December 2012, Kenya had a Sh1.7 trillion debt, comprised of Sh971 billion borrowed externally and Sh821 billion from domestic sources.

Without a legal cap, the government has continued to borrow — especially Uhuru’s administration —in disregard of the cap set in the PFM Regulations, 2014.

China heads the list of external debt creditors by 22 per cent, followed by the World Bank at 20 per cent; ISB (19 per cent), commercial banks (14 per cent), African Development Bank (eight per cent) with the rest by Japan.

The situation is so bad that for every Sh100 in revenue collected by the state, Sh66 goes towards repayment of debt, leaving only Sh36 for development and recurrent expenses.

Owing to this, Kosgey wants the National Assembly given more powers to oversight revenue collection, not just budgetary allocation, as is the case today.

He further proposes that the Treasury Cabinet Secretary must provide information detailing the intended purpose of a loan, whether borrowed internally or externally.

“In seeking approval to borrow, the CS shall submit to the National Assembly the intended purpose for borrowing and the envisaged repayment plan,” the bill states in part.

MPs in the Budget Committee expressed concern that some of the borrowed monies are being spent on recurrent budget needs.

“I am sure this (debt) position cannot hold for long if we want to develop as a country. We know the international indicators are showing that we are still safe but we need to be careful about how we manage the debt,” Kitui Central Makali Mulu said.

During the presentation of budget estimates, CS Henry Rotich Rotich expressed confidence the country will not default

“Public debt is within sustainable levels and the debt burden is projected to decline over the medium term…We shall continue to remain on this planned path of reducing the Sh607 billion fiscal deficit in the medium term in order to create more fiscal space and to reduce the public debt," he said.

Rotich said loans have been used to finance development, including in areas such as ports, railways, roads, energy and water.

Accordingly, the recently established Public Investment Management Unit will be appraising all proposed infrastructure projects before they are committed to in the budget, the CS said.

(Edited by V. Graham)