More clarity needed on plans to raise debt ceiling

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More clarity needed on plans to raise debt ceiling


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Summary

  • The Treasury will now propose amendments to the Public Financial Management Act and table the amendments for passage by the House.
  • MPs removed the 400 billion shillings cap and reinstated the 846 billion shillings cap as set out in the fiscal policy statement.
  • Mr. Kimunya may have succeeded in changing the law to accommodate the huge budget deficit, but such an important debate requires sobriety from lawmakers and nonpartisan positions.

MPs last week moved to shield the Treasury from a fiscal dilemma after dropping a proposal to cap new borrowing in the new financial year at 400 billion shillings.

The amendment, introduced by National Assembly Majority Leader Amos Kimunya, allowed the Treasury to raise the debt ceiling and borrow the 846 billion shillings it needs to fill the budget gap during the next fiscal year.

The Treasury will now propose amendments to the Public Financial Management Act and table the amendments for passage by the House.

The Treasury had, in the 2021 Medium-Term Debt Management Strategy, stated that it would table amendments to the Public Finance Management Act for approval by lawmakers to raise the debt ceiling, without disclosing the new limit he is considering. Lawmakers raised the cap to 6 trillion shillings in October 2019.

Mr Kimunya rallied his troops to overturn the report of the Committee on Budget and Appropriations (BAC), which had imposed a 400 billion shilling cap on new debt to avoid breaching the 9 trillion shilling loan ceiling .

MPs removed the 400 billion shillings cap and reinstated the 846 billion shillings cap as set out in the fiscal policy statement.

MPs approved Mr. Kimunya’s proposals asking the Treasury to change the debt ceiling by acclamation. This means that the Treasury can go ahead and seek a new ceiling beyond 9 trillion shillings.

BAC had refused to pass the deficit, stating that the effect of the BPS approval would be a collateral violation of the cap, and asked the Treasury to seek an opinion from the Attorney General’s office.

Mr. Kimunya may have succeeded in changing the law to accommodate the huge budget deficit, but such an important debate requires sobriety from lawmakers and nonpartisan positions.

It is also worrying that Mr Kimunya has not disclosed the new cap that the government wants the Treasury to be allowed from the current trillion shillings and the steps to be taken to ensure that the government does not interpret this as a license to return to its borrowing spree which is now approaching the red line.

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