The government quietly raised the national debt ceiling by Ksh 1 trillion to Ksh 10 trillion.
National Treasury Cabinet Secretary Ukur Yatani raised the cap by exploiting the provisions of the Public Financial Management (National Government) (Amendment) Regulations 2022.
In a Special Gazette notice dated Thursday, May 26, Yattani raised the country’s debt limit to help finance the budget deficit of over Ksh 400 billion.
This action by Yatani follows the amendment of Regulation 26 of the Public Financial Management Regulation Act (2015).
Treasury Cabinet Secretary Ukur Yatani
“Regulation 26 of the Public Financial Management (National Government) Regulations 2015 is amended in sub-regulation 1 by deleting paragraph (c) and substituting: in accordance with the provision of Regulation 50 (2 ) of the law, public debt shall not exceed Ksh 10 trillion,” the notice read in part.
Yatani’s proposed regulations will be up for debate in the National Assembly when parliamentarians sit down to debate the contents of the entire proposal.
Talk to TNZT.co.keFinance expert and CEO of Somakazi, Nicholas Gachara, said raising the ceiling will have both positive and negative effects on the country’s finances.
Gachara explained that if the new debt ceiling will be used to secure loans that will be directed towards development projects, then there is no need for alarm as most TNZT will be the ultimate beneficiaries.
He noted that such development projects will benefit TNZT through job creation. He argued, however, that taking out loans to meet recurrent expenses would be detrimental to the country in the long run.
“Debt is a double-edged sword, if it is to be used for development it would be good debt. If it is used to meet recurrent expenditures such as civil servants’ salaries, then it becomes bad debt. Recurrent expenditure should be covered by revenue collected internally through taxes,” he said.
The CEO of Somakazi pointed out that the long-term effect of raising the debt ceiling will increase the cost of living. He explained that by offsetting the debt, the government could resort to raising taxes in an effort to generate more revenue through an expanded tax base.
He felt that if the state took more dollar loans, it might find it difficult to repay due to the scarcity of dollars and the fluctuating and parallel exchange rates. This, he says, could force the government to pay higher interest rates.
“I am worried that in the future Kenya may find it difficult to pay the international debt especially if we are going to go for dollar denominated loans.
“The parallel rates, where the entities it borrows from may have a higher exchange rate than what the country offers, may put pressure on the state. It will also increase the cost of living as we import the majority of items in exchange rates,” he said. declared.
Gachara added that stretching the borrowing limit will further increase the country’s debt-to-gross domestic product (GDP) ratio from the current 68.1%. This, he said, threatens the country’s borrowing limit.
“The current debt to GDP ratio is approaching 70% because the Kenyan economy is valued at Ksh 13-14 trillion and they want to increase the debt to Ksh 10 trillion which would bring it closer to 100%” , he added.
Nairobi residents pictured in the National Archives of Kenya section of the Nairobi CBD.