GOK To Set Annual Debt Limit To Contain Runaway Borrowing

By Nsunjo Erica

Following the increased rate of runaway borrowing coming on the back of rapid expansion to Kenya’s debt stock, the government is expected to set an annual debt limit.

This follows 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.

Government Of Kenya is expecting to make this proposal work through help from its fiscal monitoring agencies and Parliament to contain the outlandish borrowing.

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.

This new proposed policy is seen as a cure to uncontrolled borrowing practices as the stock of public debt now races towards the Ksh.7 trillion mark, as many keep borrowing and running away minus paying.

Currently, Kenya prescribes to an absolute debt ceiling of 9 trillion shillings, a ceiling set to stick to the end of the 2023/24 financial year following amendments 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 Public Debt Management Office (PDMO) 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 for controlling irregular borrowing.

The government also expects the PDMO to maintain a public debt registry, undertake a periodic debt sustainability analysis (DSA) and prepare debt reports and disseminate the same to the public.

According to treasury CS Ukur Yatani, 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.

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

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.