Kenya's debt ceiling to move from Ksh.10 trillion

Kenya’s debt ceiling is set for further amendments despite recent changes that moved the upper limit from Ksh.9 trillion to Ksh.10 trillion.

In new disclosures to the International Monetary Fund (IMF), the National Treasury says the current Ksh.10 trillion debt ceiling will be replaced with a debt anchor set at 55 per cent of GDP.

The lifting of the debt ceiling from Ksh.9 trillion to Ksh.10 trillion was regarded as an interim measure to enable the full financing of the FY2022/23 budget.

“By end December 2022 (we will) replace the nominal debt limit with a debt anchor cantered on two pillars (including) a medium term debt anchor set at 55 per cent of GDP with debt measured in present value terms, and, an accountability requirement that mandates transparent communication to Parliament and the public on plans and progress towards achieving the debt anchor within a specific timeframe,” the National Treasury stated.

In May 2022, the National Treasury presented proposals to move away from the nominal debt ceiling to a debt anchor but withdrew the proposal to allow for further consultations.

According to data from the exchequer and the Central Bank of Kenya (CBK), Kenya’s gross public debt stood at Ksh.8.5 trillion as of the end of April 2022.

The National Treasury projects that the stock of debt rose to Ksh.8.8 trillion at the close of the 2021/22 fiscal year in June.

In its new staff report, the IMF states that Kenya’s public debt is sustainable but remains at a high risk of distress.

“Under the baseline, public debt is expected to peak at 70.4 per cent of GDP in FY 2022/23. As the consolidation efforts continue, the primary deficit is projected to fall below its debt stabilizing level in 2023, putting the public debt ratio on a downward path,” stated the IMF.

Despite majority support for moving the debt ceiling last month, several lawmakers stood in opposition to the changes which they say allow for more debt taking raising Kenya’s risk of falling into debt distress.

“The issue of public debt is not one we ought to justify and appease ourselves on because it is a burden we are placing on the shoulders of the Kenyan people,” noted Kikuyu MP and former Chair of the National Assembly Budget and Appropriations Committee (BAC) Kimani Ichung’wa.

“In the big picture, it means that in a record nine years, we have increased our public debt by a whole Ksh.7 trillion. Sooner or later, we still have to increase the debt ceiling and it means that we are living above our means,” added Nominated Senator Isaac Mwaura.

According to estimates contained in the 2022 Budget Policy Statement (BPS), the current Ksh.10 trillion debt ceiling will be breached before June 2024 with the stock of public debt projected to rise further in the near-term.