Treasury seeks to breach Ksh.10 trillion debt ceiling

Cabinet Secretary Njuguna Ndung'u proposes tying the debt limit to no more than 55 percent of the country's GDP in order to increase borrowing capacity.

'The cabinet Secretary shall at all times maintain public debt at a level not exceeding 55 percent of Gross Domestic Product in Present Value (PV) terms,' according to a proposed amendment to the Public Finance Management Act 2012.

The move comes just weeks after the cabinet approved a proposal to close a budget funding gap for the fiscal year that ends in less than two months and possibly provide funding to pay off maturing debt.

This makes borrowing a top priority for the government, which is currently mired in a funding quagmire due to lower-than-expected revenue collection.

Treasury has already sought services from qualified firms to assist it in launching a new Eurobond before the end of the fiscal year ending June 2024.

The race against time is intended to keep the country from defaulting on a $2 billion Eurobond issued in June 2014, the repayment of which is due next year and is expected to increase the country's external debt repayment burden by nearly 100 percent.

The new Eurobond returns Kenya to the international capital markets just over a year after a similar move to borrow at least Sh115 billion (in USD) was halted due to market conditions.

The twin processes of removing the debt ceiling and attempting to float a Eurobond are expected to assist the government in escaping from a lack of borrowing capacity and a budget deficit in the current and next fiscal years.

Treasury has been struggling to close a Ksh.720 billion funding gap and a borrowing window that only allows for Ksh.585 billion in the current fiscal year.

Domestic debt repayment recently resulted in a cash crisis, causing some civil servants to miss their March 2023 paychecks.

In the move , the Treasury CS will also be allowed to breach the 55 percent.

´´Provided that if any time the public debt exceeds this threshold, the Cabinet Secretary shall submit a written report to Parliament explaining the cause of the breach on the threshold and provide a time -bound remedial plan’´

The public debt is expected to reach Ksh. 9.4 trillion in June, already exceeding the Treasury's target of 55 percent of GDP.