MPs oppose Treasury effort to raise debt ceiling to Sh12 trillion

The first challenge would be lobbying lawmakers to back the proposal

In Summary

• President Uhuru Kenyatta’s administration is only Sh590 billion short of breaking the cap set by MPs in October 2019.

• The government would not be able to fund Sh317 billion of its budget, affecting key projects.

The National Treasury building
The National Treasury building
Image: FILE

The Treasury will find it difficult to raise the debt ceiling to Sh12 trillion from the current Sh9 trillion because some MPs oppose the plan.

The lawmakers say it would be untenable to allow the Treasury to go on another borrowing spree by raising the debt ceiling.

Sources say the Jubilee administration is planning fresh amendments to the Public Finance Management Regulations to push the debt cap.

 Treasury Cabinet Secretary Ukur Yatani had yet to respond to the Star’s enquiries on the matter by press time.

But some MPs said the proposal might not sail through Parliament because of the country’s sorry economic situation.

A ranking member told the Star that the first challenge would be lobbying lawmakers to back the proposal.

The same scenario played out when Treasury sought Parliament’s approval for the current Sh9 trillion cap.

The other reason is that Parliament is currently polarised by the Building Bridges Initiative politics and 2022 succession.

Eldama Ravine MP and Budget committee vice chair Moses Lessonet said his team was unaware of plans to raise the debt ceiling.

But the committee would recommend the state works within the limit of Sh9 trillion cap if the matter came up to them.

“The government has to work a strategy to fit within the range. The economy has not expanded that much to accommodate a figure beyond Sh9 trillion,” Lessonet said.

Tharaka Nithi Senator Kithure Kindiki said if the Treasury pushed the proposal through, the situation would turn for the worst as Kenya is already sinking in debt.

The lawmaker argued that the “simple, painless solution to our current fiscal crisis it to drop all non-essential, non- emergency expenditure from the budget.” He’d vote no should the proposal go to the Senate.

The former Senate deputy speaker says removal of foreign travel, entertainment costs and downward review of all allowances would help.

“…downsize or remove all together all non-urgent projects and programmes in all departments at both the national and county governments,” Kindiki said.

President Uhuru Kenyatta’s administration is only Sh590 billion short of breaking cap set by MPs in October 2019.

The situation, experts say, portends a crisis in the next financial year with the projected budget deficit of Sh907 billion.

The shortfall means the government would not be able to fund Sh317 billion of its budget, affecting key projects.

Public debt, according to the latest Treasury reports was Sh8.41 trillion as of August 2020 against the ceiling of Sh9 trillion.

The stock of public debt accounts for Sh7.06 trillion, or 69.2 per cent of gross domestic product, while there is an undisbursed debt of Sh1.35 trillion.

About 47 per cent of total government revenue – about Sh904.7 billion – has been set aside this fiscal year as debt servicing payment.

Already, the public debt sustainability indicators, as per the medium-term debt management strategy, illustrate that Kenya faces a high risk of debt distress.

Parliamentary Budget Office says there will be no way the National Treasury would escape breaking the cap.

In highlights on the debt situation, the office says the country’s economy was struggling a situation now worsened by the adverse effects of Covid-19.

PBO argues that following the disruption, interest payments went high amid low revenue collection from imports and exports.

Abraham Rugo, country manager of International Budget Partnership – Kenya, told the Star that the country is already in a crisis.

He said it was disappointing that no government official has made a call on reducing expenditure yet.

Rugo said there were no two ways about managing the deficit apart from increasing revenue and reducing expenditure.

In this regard, he said the best bet would be for the government to stop unnecessary construction projects, non-essential expenditure and new contracts.

“We cannot continue on an expanded expenditure framework. We are going to sink the country deeper into debt. Desperate times call for desperate measures but doesn’t mean you put your house on fire,” he said.

The expert warned that next year will be a harsh one if the government continues with spending at the current rate, and puts cash to the BBI and referendum.

“Everything that can go wrong with a fiscal plan is going wrong in our case. We hope for once the President and Parliament can rein in and say we cannot continue digging deeper.”

He said that an aggregate number was not the problem, but the discipline of government to live within its means.

(edited by o. owino)

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