National Treasury CS Njuguna Ndung’u came under fire over the breaching of the Sh10 trillion debt ceiling which was set in June 2022 for the 2022/2023 Financial Year.
Members of the National Assembly’s Public Debt and Privatisation Committee censured Ndung’u for not alerting the House in advance when the government was just about to breach the ceiling.
“Once you realised we were heading there, you should have come to the committee to tell us about the scenarios,” committee chair Shurie Abdi Omar said.
Omar said the National Treasury should have informed the House that the ceiling was breached partly because of the depreciation of the shilling.
“You should have told the House that it was not about borrowing but the exchange rate,” he stated.
Appearing before the committee on Friday, Ndung’u told MPs the stock of debt ceiling as of the end of June 2023 was Sh10.27 trillion.
He said the amount comprises external debt (Sh5.44 trillion or 52.9 per cent of the total) and domestic debt (Sh4.83 trillion or 47.1 per cent of the total).
Ndung’u further came under fire for not officially informing the House the ceiling had been breached.
“Why hasn’t the National Treasury written to the National Assembly to say they have breached the law,” posed Kinangop MP Zachary Thuku Kwenya.
Ndung’u pleaded with the MPs to be part of the solution adding that patience is needed.
“Let us be like a household. By the time the children know there is no food, we will have tried all we can,” he explained.
A breach of the debt ceiling signals the possibility that the country’s debt could be excessive and unsustainable.
Public debt is regarded as excessive if it substantially reduces the amount of goods and services available to future generations, and if the country could lose or only have reduced access to financing.
Excessive public debt has several economic consequences.
Servicing the debt reduces resources available for funding the government’s other programmes.
It also means government cannot afford to stimulate economic activity by, for example, lowering taxes, or providing welfare support to citizens.
Further, government borrowing transfers wealth from the poor, who must pay increased taxes for debt repayment, to the rich, who lend money to the government and earn interest from it.
In June, MP approved the conversion of Kenya’s debt ceiling from the current Sh10 trillion to a debt anchor as a percentage of gross domestic product (GDP), removing the final hurdle for Kenya to align with global best practices backed by the International Monetary Fund (IMF).
The Public Debt and Privatisation Committee approved the threshold of the debt anchor of 55 per cent of GDP in present value terms.
The committee has, however, provided a window not exceeding five per cent to accommodate the current debt threshold to GDP which stands at 60 per cent.
President William Ruto’s Cabinet in March gave a nod to the National Assembly to change the debt ceiling from the current limit of no more than Sh10 trillion to an anchor set at 55 per cent of GDP in present value terms.
The new ceiling means that the government is already in breach, given that Kenya’s debt is above 70 per cent of the GDP.