The Treasury has escaped a scare on its expenditure plans for the next financial year after the Attorney-General’s office deflected threats by Parliament to shoot down the national budget proposals on grounds that it would breach the legal debt ceiling.
Solicitor-General Ken Ogeto, in a legal advisory, said that passing the Budget Policy Statement 2022 would not violate the Sh9 trillion public debt limit because the Treasury had not actualised its spending plans.
“The question whether or not the debt ceiling as set by the Parliament has been or will be exceeded can be answered only at the point of an actual proposed borrowing,” he said in the advisory to Treasury Cabinet Secretary Ukur Yatani.
“It is our opinion that to the extent that the Budget Policy Statement is a statement of intention, the passage thereof does not ipso facto (by that very fact) violate the statutory requirement that any borrowing must not exceed the limit set by Parliament.”
Members of the Budget and Appropriation Committee of the National Assembly had raised concerns that passing the 2022 BPS, which contains a funding gap of Sh846 billion, will violate the debt limit.
This is because total debt is projected to hit Sh8.6 trillion by the end of the current financial year in June, leaving a Sh400 billion room for borrowing next financial year from July — which is less than half what the Treasury has planned.
Treasury Principal Secretary Julius Muia had sought help from the AG’s office after the committee, led by Kieni lawmaker Kanini Kega, had maintained the funding gap for next financial year’s budget be chopped by more than half, to Sh400 billion, so as not to breach the limit.
The current Sh9 trillion legal debt ceiling, which is a 50 per cent raise on the previous Sh6 trillion threshold, was set in October 2019.
President Uhuru Kenyatta’s administration has relied on loans to build roads, bridges, power plants, and the standard gauge railway since taking power nine years ago.
This has ballooned public debt from Sh1.89 trillion the Jubilee administration inherited from retired President Mwai Kibaki, to a projected Sh8.59 trillion by the end of this fiscal year in June.
This means Mr Kenyatta’s government will have borrowed at least Sh6.7 trillion by the time he leaves office.
A section of lawmakers allied to Kenya Kwanza Alliance, which is led by Deputy President William Ruto, has been threatening to shoot down the BPS document, which sets out broad strategic priorities for budgeting by national and county governments.
They have argued that passing it will allow Mr Yatani to breach the debt limit ahead of the transition without seeking parliamentary approval.
Mr Yatani, however, maintains the Treasury has drafted amendments to the Public Finance Management Act, intending to review the public debt ceiling from Sh9 trillion to 55 percent of gross domestic product (GDP) — a measure of economic output.
The draft will be subjected to views from stakeholders and the public before being tabled for debate and approval by lawmakers.
The Parliamentary Budget Office — a professional unit that advises lawmakers on financial and economic matters — has, nonetheless, warned that the current debt levels are already hovering around 65 percent of GDP.
“At the current level, debt stock accounts for 88.8 percent of the Sh9 trillion PFM Debt Ceiling (and has a Present Value (PV) of Public Debt-to-GDP ratio of 64.2 (against a threshold of 55),” Parliamentary Budget Office analysts wrote this month in the report of 2022 Medium Term Debt Management Strategy.
“In order to maintain fiscal sustainability at such high debt levels, sound fiscal policy/management should work in tandem with economic structural transformation to achieve high economic growth rate.”
