The current debt stock is projected to range above Kshs. 9.4 trillion by June this year, and cross the Kshs. 10 trillion debt ceiling by June 2024. This is according to a 2023 Public Finance Management Regulation Amendments report presented by the Parliamentary Budget Office (PBO) to the National Assembly Public Debt and Privatisation Committee Chaired by Balambala MP Hon. Abdi Shurie.

The Committee heard that, with the public debt limit set at Kshs. 10 trillion, the borrowing space to finance the Financial Year 2023/24 will be expected to be less than Kshs. 600 billion. This amount is insufficient to finance the budget deficit estimated to amount to Kshs. 720.1 billion, as indicated in the 2023 Budget Policy Statement.  

With this current debt stock state, the National Treasury is calling for public participation on the amendment of the PFM Act (Regulations) (2012) intended to transform the current public debt limit from a numerical figure of Kshs. 10 trillion to a debt anchor of 55 percent of public debt to Gross Domestic Product (GDP), in Present Value (PV) terms. The Cabinet Secretary for National Treasury and Economic Planning is expected to appear before the Committees in charge of Budget and Appropriation, Finance and Public Debt and Privatization today, to discuss this amendment.

As of January 2023, the public debt stock amounted to Kshs. 9.182 trillion. At the current level, debt stock accounts for 92 percent of the Kshs. 10 trillion PFM Debt Limit, and is estimated to have Present Value of Public Debt to GDP ratio of 62 percent against a threshold of 55 percent.

This insufficiency of borrowing space is one of the key reasons for the amendment of the debt ceiling as it aims to provide adequate fiscal space to undertake the Financial Year 2022/23 Budget and medium-term expenditure.  

This will be the 7th time the debt ceiling is being amended since 2013 and raises questions relating to the perceived role of debt ceiling in fiscal policy management and the critical aspect of debt sustainability and the need to finance long-term economic policy. 

The proposal comes at a time when the economy is characterized by high cost of borrowing from the domestic and external markets, high inflation and depreciating exchange rates. This, combined with poor performance of domestic tax collection and preference of the domestic market for short term government securities, has resulted in increased cost of meeting government expenditure while creating liquidity constraints in Government expenditure capacity.