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Treasury proposes change in debt rule

James Momanyi @jamomanyi

National Treasury wants Parliament to amend the Public Finance Management (National government) regulations of 2015. The proposed amendment is meant to clarify that the debt ceiling specified in Regulation 26 (1) (C) only refers to external public and publicly guaranteed external debt.

Principal Secretary Kamau Thugge told National Assembly Committee on Delegated Legislation yesterday that the regulation which states “the National Public debt shall not exceed 50 per cent of the gross domestic product (GDP) in net present value terms” need amendment to reflect the net present value of debt.

“The Net Present Value (NPV) of debt only deals with external debts because they have a concessional component to it. We want it to be amended to reflect this because the debt sustainability ratios that IMF and WB talks about are only on the external debt,” he said.

The amendments are premised on the fact that external debts pose more fiscal risks than domestic ones and that is why Treasury proposed a limit or a ceiling for these debts. The PS told members of the committee that the amendment is anchored on World Bank’s Country Policy and Institutional Assessment index that sets the thresholds for various countries.

According to this index, Kenya is rated “strong” with an index of 3.83 against a maximum score of 5. The relevant threshold for external debt sustainability for a country like Kenya, which is under this category include a 50 per cent NPV of debt to GDP ratio, 200 per cent NPV of debts-to-export ratio and a 300 per cent NPV of debt-to-revenue ratio.

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