NO WAY OUT

Why debt ceiling must cross Sh9 trillion

President Uhuru Kenyatta’s administration has only Sh590 billion left to hit the ceiling

In Summary

•Revenue shortfall is anticipated to persist this year in the face of countries considering lockdowns and restrictions of movement to contain Covid19.

The National Treasury and Planning building in Nairobi.
DEBT STRESS The National Treasury and Planning building in Nairobi.
Image: FILE:

Lawmakers have no alternative but to grant the National Treasury its wish to cross the Sh9 trillion public debt ceiling, the Parliamentary Budget Office has said.

The budget office posits that with loan commitments disbursed and undisbursed standing above Sh8 trillion, there would be no further room for borrowing.

“This means we are likely to take more than 90 per cent of the statutory ceiling of Sh9 trillion,” PBO said in an advisory to National Assembly’s Budget committee obtained by the Star.

President Uhuru Kenyatta’s administration has only Sh590 billion left to hit the Sh9 trillion debt ceiling approved by MPs in October 2019.

The government is likely to lack legal space to fund up to Sh317 billion of next financial year’s budget owing to the current ceiling.

PBO blamed the situation on serious credibility concerns of the National Treasury in fiscal management.

It said the ceiling is likely to be breached by June 2021, setting the stage for a budget crisis in the financial year 2021-22.

Among the concerns PBO raised with MPs was the government seeking T-bills redemption yet it has a huge overdraft of Sh51.2 billion against a ceiling of Sh68 billion.

There are also legal issues surrounding the overdraft facility which is in form of borrowing and that the government still holds huge deposits of Sh320 billion.

“Why not utilise the funds in the budget? Why hasn’t the government taken advantage of this?” PBO asked.

It further argued that some loans are in dispute but commitment fees are still being paid. This has fiscal consequences in the future.

Treasury suffered Sh186.3 billion revenue shortfall last fiscal year following the reliefs to cushion taxpayers from adverse effects of Covid-19.

The revenue shortfall is anticipated to persist this year in the face of countries considering lockdowns and restrictions of movement to contain Covid-19.

PBO further holds that the National Treasury is in breach of PFM law for not establishing a sinking fund.

“This could help in the cash management of the debt portfolio. Ideally, the National Treasury should channel funds to sinking fund and then the Controller of Budget approval sought as and when required to pay out of the fund,” the team advised.

At the moment, the National Treasury seeks direct authority from the Controller of the Budget without going through the sinking fund.

“This ends up creating a mismatch between what is CoB approved and what is eventually paid out,” PBO said.

The team is also advising against prior spending by the government saying it will hamper fiscal consolidation efforts and cause a crisis in budget financing.

PBO argues that with revenue projected to underperform, there would be limited options for the Treasury to escape a higher ceiling.

It cited a significant reduction of economic activity following the Covid-19 crisis dealing a blow to accommodation and food services; education; taxes on the product, transport, and warehousing.

PBO holds that income tax revenue is expected to underperform due to subdued economic growth.

Other aspects, the experts said, are job losses by workers in both the formal and informal sector due to the pandemic.

 

Edited by Kiilu Damaris