President William Ruto chairing a meeting at State House.FILE
President William Ruto’s administration has breached the country’s limits set in law within which the government can borrow, it has now emerged.
Controller of Budget Margaret Nyakang’o has flagged the anomaly as the public debt stock hit Sh10.8 trillion as of September 30, 2024.
The stock translates to 67 per cent of the gross domestic product, which the National Treasury recently estimated at Sh16.1 trillion.
National Treasury’s Budget Review Outlook Paper 2024 indicates that Kenya’s GDP was Sh16.11 trillion as of June 30, 2024.
The law governing public fi nance states that the national government borrowing “shall not exceed the limit Parliament sets”.
Presently, the law has set the public debt ceiling at 55 per cent of the gross domestic product.
But as of September 30, 2024, the public debt stock (Sh5.19 trillion for external lenders, and Sh5.6 trillion for domestic) was 12 per cent above the set cap.
“The public debt stock, therefore, surpassed the authorised public debt limit,” Nyakango said.
The Controller of Budget wants the Ruto administration to reduce the budget deficit financing by instigating more spending cuts.
Controller of Budget data further reveals that the government borrowed more than Sh210 billion in three months alone (June-September 2024).
This could translate to a borrowing rate of about Sh2.2 billion per day, coming after MPs amended the law to allow the executive to borrow without much restriction.
In 2019, the government amended regulation 26(1)(c) of the Public Finance Management (National Government) Regulations, 2015.
The aim was to bring down the debt ceiling from a ratio of 50 per cent of debt to GDP to a numerical ceiling of Sh9 trillion.
In 2022, the regulation was further amended to set the ceiling at Sh10 trillion to support the budget for the financial year 2022-23.
A few months later, in June 2022, the government amended the Public Finance Management Act, of 2012, changing the public debt ceiling from a numerical number to a percentage of GDP.
The amendment set the debt anchor to 55 per cent of public debt to GDP in present value terms. With the latest red flag by the Controller of Budget, it begs the question on how the Kenya Kwanza administration would fund the next budget.
Ths is especially after some of the critical expenditures that were to be funded through the botched Finance Bill, 2024, were accommodated through an increase in debt. Budget experts have warned that an increase in borrowing will affect the cost of borrowing and increase debt servicing expenses.
“More loans would further crowd out resources for development and other critical recurrent expenditures in the medium term,” the Parliamentary Budget Office said.
Last June, the government secured Sh39.7 billion from the World Bank under the International Development Association to bolster transparency in public finance.
Another Sh5.8 billion was obtained from IDA to boost Kenya Power’s capacity for energy trade and renewable energy integration.
African Development Bank also extended Sh14.8 billion to enhance electricity supply.
To effectively manage the rising cost of public debt service, Nyakango wants the National Treasury to implement fiscal consolidation measures to reduce non-productive public expenditures.
“For instance, borrowing should only be undertaken to fi nance productive projects. The National Treasury should pursue economic policies that support accelerated economic growth to enable the country to grow out of debt in the long run,” the budget boss said.
“With high economic growth, that is, average growth higher than the average interest rate paid on debt, the economy will be able to grow out of debt in the long run,” she said.
Debt repayment has been a bane on the country’s already squeezed budget.
This financial year, the repayments are to the tune of Sh1.9 trillion.
This means that for every Sh100 deposited in the consolidated fund services account, Sh89 goes towards loan principal and interest repayments.
The grand question is whether the loans have been applied correctly, or are being used to finance fringes as flagged before.
Recently, the Controller of Budget flagged unchecked spending on luxuries in violation of the austerity measures spelt by the Treasury.
