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MP proposes Sh6 trillion national debt ceiling

Zachary Ochuodho @zachuodho

A Member of Parliament has proposed an amendment to the Public Finance Management Act to fix the country’s debt ceiling at Sh6 trillion.

Emgwen MP, Alexander Kosgey, said the proposed bill, if passed, will enable the country to have a clear debt figure as opposed to a percentage – which does not say much.

Key to the proposed bill is that the government will now be forced to submit to Parliament a clear repayment schedule plan for each loan that they wish to take.

Kosgey, however, said the National Treasury, MPs and the general public are free to suggest changes to the draft bill to either increase or reduce the amount at which the ceiling should be set at.

“This is only a recommendation and that Treasury, Members of Parliament and the general public are free to suggest changes to the draft Bill either to reduce or increase the debt ceiling,” he said.

Kosgey said Kenya currently has the highest debt to gross domestic product (GDP) ratio in East Africa of 57 per cent, followed by Burundi (55%), Uganda (40%), Rwanda (39%) and Tanzania (38%).

He said in 2012 Kenya’s debt to GDP stood at 40 per cent. According to National Treasury, Kenya’s gross public debt stood at 5.039 trillion as at June 2018, 51 per cent of which is external debt, while 49 per cent is domestic debt.

Kosgey said the rate at which the national debt is currently increasing means if it is not checked, the country may run into a crisis.

He said given the fact that Kenya Revenue Authority does not always meet its target collection, it is risky to borrow without any plan.

The legislator said soon, the government expects to borrow about Sh400 billion to enable it to extend Standard Gauge Railways (SGR) from Naivasha to Kisumu. He said debt is likely to spiral to a disproportionate level that may require rescheduling in order to pay or borrowing to pay – which is risky.

Johnson Nderi Head of Corporate Finance and Advisory at ABC Capital Ltd said setting the debt ceiling at Sh6 trillion will give the government authority to borrow more to reach the limit. “But if the government does this, it would be crowding out the private sector more,” he added.

“Now that the tax rate has been revisited perhaps Parliament is giving the government some breathing room to borrow more which is dangerous for the country,” Nderi said.

Having a debt ceiling allows Treasury to borrow money it is certain to repay and meet other obligations in full and on time.

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