Emgwen MP proposes cap to public debt at Ksh.6. trillion


Emgwen MP proposes cap to public debt at Ksh.6. trillion
Emgwen MP Alexander Kosgey PHOTO | CITIZEN DIGITAL

In Summary

  • In his presentation of the draft recommendation to the Budget and Appropriations Committee on Thursday, Kosgey seeks to make clear the provisions for government lending through the National Treasury by introducing a nominal cap as opposed to the current ratio based threshold.
  • However even as the ratio’s interpretation tussle persists, existing indicators have pointed to a breach in the PFM Act threshold of a 50 percent public debt to GDP ratio.
  • According to official data from the National Treasury, Kenya’s debt to GDP ratio stood at 52.7 having risen by Ksh. 698.4 billion to reach Ksh.5.28 trillion in 12 months to December 2018.

Emgwen Member of Parliament Alexander Kosgey has made his submission of the proposed raise to the public debt threshold to an absolute Ksh.6 trillion under amendments to the Public Finance Management (PFM) Act.

In his presentation of the draft recommendation to the Budget and Appropriations Committee on Thursday, Kosgey seeks to make clear the provisions for government lending through the National Treasury by introducing a nominal cap as opposed to the current ratio based threshold.

“We don’t have much room for manouvre if we allow public debt to extend beyond the Ksh.6 trillion mark. We would hope to see Treasury stay below this threshold and live within its mean,” Mr. Kosgey told Citizen Digital.

Bone of contention

While there has been an existing threshold defined in the ratio of public debt to Gross Domestic Product (GDP) at 50 percent, the measure of limits to government borrowing has been blurred, plagued by multiple assessment methodologies to arriving to a final ratio.

Multiple entities have since presented differing public debt ratios as some take up a nominal view to existing State liabilities while the remainder adopt a net present value (NPV) weighted assessment leading to the variations and discrepancy in variation.

According to official data from the National Treasury, Kenya’s debt to GDP ratio stood at 52.7 having risen by Ksh. 698.4 billion to reach Ksh.5.28 trillion in 12 months to December 2018.

PFM breach

However even as the ratio’s interpretation tussle persists, existing indicators have pointed to a breach in the PFM Act threshold of a 50 percent public debt to GDP ratio.

The government has since tossed out its own legal provisions, adopting in its wake, the 74 percent public debt threshold prescribed to lower middle income countries by the International Monetary Fund (IMF).

The legislator’s own proposal of the absolute cap to public debt at Ksh.6 trillion for instance at this point stand in direct contravention of the existing threshold to public debt given the already bloated State debt obligations.

Kosgey admits to the contravention of the provisions passing the buck of responsibility to members of the national assembly.

According to Kosgey the breaches have grown from the lack of sanctions to Treasury in the event of contraventions to the laid down borrowing targets.

“We wish to have a clearer amendment to the PFM law. We need to ensure that Treasury is not borrowing beyond the limit while ensuring the ministry consults us on any new credit facilities while disclosing a sound repayment plan,” he added.

Debt distress

The pursuit for amendments to the PFM Act arise even as debt distress concerns remain rife.

The tell-tell signs have been in the public domain with the IMF for instance lowering the country’s debt risk profile from low to moderate in its 2018 debt sustainability analysis.

Kenya sits dead center in the profiling of Africa’s debt distress by country in an analysis by the African Development Bank (AfDB).

According to the breakdown only 16 countries have a debt to GDP ratio below 40 percent including Mali and Algeria while six who include Congo, Egypt, Eritrea, Mozambique and Sudan have public debt ratios surpassing the 100 percent mark.

Non-Paris club debt

While the World Bank has commended Kenya’s intervention to stem the rapid growth in public debt between the 2015/16 and 2017/18 fiscal years, the multi-lateral lender has warned of the rise in debt uptake from creditors who sit outside the realm of the Paris Club which is often attached to State assets as collateral.

This even as the country lines up an additional credit facility with China- Kenya’s single largest bilateral lender to finance the completion of the Standard Gauge Railway (SGR) phase 2B between Naivasha and Kisumu at an estimated cost of Ksh.368 billion.

Cognizant of the need to rally in prudence in the management of public resources, Budget and Appropriations Committee chairperson Kimani Ichungwa backs the changes to the PFM provisions to strengthen Parliament’s debt management role.

“An Act of parliament is always better as it comes from an inclusive process which includes elements such as public participation as opposed to regulations simply drafted by a Cabinet Secretary, he said,

Kenya’s public debt has since risen to Ksh.5.4 trillion as at February 2019 even as the State remains in pursuit of an extensive fiscal consolidation program to stem budget deficits and raise domestic revenue mobilization.

 

 

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