Kenya is facing a debt crisis but government officials don’t seem to know what to do about it. The obvious route is to borrow some more to pay old debts and finance the budget.
An admission by the National Treasury that the government is broke and may be unable to finance this year’s Sh3.02 trillion budget if Senate rejects an increase in the debt ceiling to Sh9 trillion exposed the sad truth.
Experts have raised the red flag that the country cannot take up more debt but from acting National Treasury Cabinet Secretary’s admission, we could be too deep in the hole that more debt is what will save us.
Earlier, United States Ambassador to Kenya Kyle Carter had said that the onus was on Kenya to sort the debt issue and that the US government was fully committed to support the building of the expressway.
The Transport Cabinet Secretary James Macharia has already announced that the Cabinet had suspended the project for at least two years to allow the country’s debt levels to drop, while also prioritising other important projects.
Mr Yattani made the revelations Wednesday during a meeting with the joint sitting of the Senate Committees on Delegated Legislation and Finance and Budget at the Kenyatta International Convention Centre as Senators and the Institute of Certified Public Accountants of Kenya (Icpak), dug in the issue.
“If we are not guaranteed this amendment, there will be a crisis in the country because we will not be able to implement this year’s budget. We will also be unable to do debt restructuring to retire some of the old and expensive commercial loans with interest rates of up to 9.5 per cent that are chocking our economy,” Mr Yattani said.
Initially, the Treasury thought it had already had its way on October 9, when the National Assembly approved the amendments to Public Finance Management (PFM) (National Government) Regulations seeking to raise the debt ceiling to Sh9 trillion from the current Sh6.09 trillion, surpassing the Sh5.8 trillion as of June, according to latest data from Central Bank of Kenya (CBK).
However, it took the intervention of the Office of the Attorney-General to remind Treasury mandarins led by the CS that it also needed the input of the Senate to amend the regulations.
According to the Statutory Instruments Act of 2013, regulations brought to Parliament for consideration by relevant government agencies cannot be amended, they can only be approved or rejected.
Initially, the Senate had proposed a ceiling of Sh7.5 trillion but withdrew after learning it was headed nowhere because of the exigencies of the law.
This means that if the Senate rejects the PFM regulations, they will be lost, meaning that the previous effort by the National Assembly in approving them will amount to naught.
The implication of the Senate’s refusal to approve the amendment means that the government will not borrow at least Sh635 billion to plug the budget deficit in the current financial year.
The government requires the billions to finance about 44 key infrastructure projects.
Any borrowing by the Executive is subject to parliamentary approval. The Treasury wants the regulations amended to change from the current debt to Gross Domestic Product (GDP) to a new target in numerical limit figure.
The law provides a debt ceiling of 50 per cent of Kenya’s GDP (about Sh9.5 trillion).
With the government having accumulated Sh6.09 trillion in public debt already, it means that it has overshot this limit by about 63 per cent of GDP, which Mr Yattani admitted is in breach of the law that now needs to be corrected through the regulations. It also means no more borrowing can be done without amending the law to increase the debt ceiling.
Mr Yattani told Senators that negotiations into the budgetary financing by various development partners have been concluded but cannot be signed without amending the law.
However, the joint committee led by Pokot West Senator Samuel Poghisio and representatives from Icpak poked holes into the Treasury’s explanation.
Senators Mutula Kilonzo Junior (Makueni), Moses Wetang’ula (Bungoma) and Irungu Kang’ata (Murang’a) warned that changing the limit will plunge the country into unsustainable debt obligations.
“I am sorry I am not seeing any evidence of restructuring the old and expensive loans,” Mr Kilonzo Jnr said.
Mr Wetang’ula said changing the current limit to numerical limit is unconstitutional.
“Your right to borrow must equal the ability to repay. If you want to open the ceilings do not take from the level of the GDP. It is unconstitutional,” he said.
Icpak’s Public Accounts Committee chairman Erustus Kwaka said amending the law as suggested by Treasury will cause debt distress.
“Debt to GDP has worked for this country for 57 years. What you are suggesting may move us to a higher and dangerous level,” he said.