Kenya raises public debt ceiling to Sh10 trillion
The Treasury has asked MPs to raise the public debt ceiling to Sh10 trillion to allow the Kenya to borrow Sh846 billion to plug the budget deficit in the fiscal year starting July 1. The lawmakers raised the debt ceiling to Sh9 trillion from Sh6 trillion previously in October 2019. Reginald Kadzutu, CEO, Amana Capital joins CNBC Africa for more.
Wed, 01 Jun 2022 10:30:27 GMT
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AI Generated Summary
- The necessity of raising the debt ceiling to address the budget deficit and fund essential services amidst mounting debt levels
- The implications of percentage-based debt capping at 55% of GDP for enhanced debt management and flexibility in borrowing
- The critical importance of debt restructuring, revenue generation, and prudent fiscal policies for economic sustainability and job creation
In a bid to address the growing budget deficit and mounting debt crisis, the Treasury in Kenya has requested the members of parliament to raise the public debt ceiling to 10 trillion Kenyan shillings, allowing the state to borrow an additional 846 billion Kenyan shillings for the fiscal year starting July 1. This move comes after lawmakers previously raised the debt ceiling to 9 trillion Kenyan shillings from 6 trillion Kenyan shillings in October 2019. Reginald Kadzutu, CEO of Amana Capital, shares insights on the implications of this decision. Kadzutu highlights the necessity of raising the debt ceiling, emphasizing that failure to do so could hinder funding for the upcoming 2022-2023 budget and potentially disrupt the electoral process. He sheds light on the challenges faced by the government in balancing debt repayment obligations with funding essential services like elections. Moreover, he discusses the proposed changes in the public finance management amendment bill 2022, which aims to cap public debt at 55% of GDP. Kadzutu explains that this adjustment provides the Treasury with more flexibility in managing debt levels and borrowing by shifting to a percentage-based metric tied to GDP. However, he cautions that the upcoming administration will face significant pressure in addressing the country's burgeoning debt. With each subsequent administration facing the burden of debt repayment, Kadzutu emphasizes the need for strategic debt management and renegotiation to ensure fiscal sustainability. He underscores the critical need for the incoming government to prioritize debt restructuring and revenue generation to alleviate the debt burden and create a conducive environment for economic growth and job creation. Kadzutu also addresses the impact of inflation and taxation on consumers, highlighting the adverse effects of double taxation through inflation on the purchasing power and disposable income of individuals. The escalating repayment expenses, consuming a significant portion of tax revenue, further compound the economic challenges faced by Kenyans. With a substantial portion of revenue directed towards debt servicing, the ability to invest in job creation and economic expansion is severely constrained. Kadzutu warns that the mismanagement of borrowed funds in previous years, coupled with low productivity and revenue generation, has exacerbated the debt crisis and stifled job growth. He stresses the need for a comprehensive and sustained effort by the government to address these systemic issues and pave the way for a more prosperous economic future, albeit acknowledging the potential for a challenging and transitional period ahead.