Gov’t to set annual debt limit to tame runaway borrowing

The government is expected to set an annual debt limit through its fiscal monitoring agencies and Parliament to contain outlandish borrowing.

The new ceiling is part of the National Treasury’s fresh proposals under the Public Debt and Borrowing Policy published last week which seeks to reverse years of damage made through the non-adherence to public debt management laws.

“The annual budget estimates presented by the Cabinet Secretary will specify the net borrowing for the financial year and the resultant debt limit for the year,” reads part of the policy.

Presently, Kenya prescribes to an absolute debt ceiling of Ksh.9 trillion — a ceiling set to stick to the end of the 2023/24 financial year following ammendments made last year after the stock of Kenya’s debt exceeded the previous limit of 50 percent of GDP at Net Present Value (NPV)

The new policy is seen as a cure to uncontrolled borrowing practices as the stock of public debt now races towards the Ksh.7 trillion mark.

At the heart of the reversal in public debt management will be the empowerment of the Public Debt Management Office (PDMO) which sits inside the National Treasury.

The office is expected to be empowered to handle the day to day operations of public debt management through adequate staff and monetary resourcing to meet the quest of controlling irregular borrowing.

The PDMO will be expected to maintain a public debt registry, undertake a periodic debt sustainability analysis (DSA) and prepare debt reports and disseminate the same to the public.

Fiscal managers including the National Treasury and the Central Bank of Kenya (CBK) are expected to establish the Debt, Fiscal and Monetary Affairs Coordination Committee which will provide guidance on fiscal deficits and borrowing operations.

“The policy is meant to act as a guide for public debt and borrowing practices of national and county governments including the issuance process and the management of the debt portfolio,” notes Treasury CS Ukur Yatani.

The Treasury is further expected to establish a sinking fund for managing the refinancing and settlement risks in the public debt portfolio.

The policy now awaits the cabinet approval before its enactment by the National Assembly through the development of complementary bills and regulations.

The pursuit of a cure to runaway borrowing comes on the back of a rapid expansion to Kenya’s debt stock.

Total government debt at the end of May stood at Ksh.6.6 trillion from Ksh.5.8 trillion in June 2019 comprising of Ksh.3.49 trillion in external obligations and Ksh.3.15 trillion in local obligations.

The significant trend in debt accumulation has raised Kenya’s debt distress with the IMF recently reclassifying the country’s rate of distress to high from moderate.

Three credit rating agencies in Moody’s, Fitch and Standard and Poor’s (S&P) have meanwhile revised their future outlooks for Kenya from stable to negative reflecting on the country’s potential repayment risks.