Treasury Proposal to Cap Public Debt at Kshs. 9Trillion is ill-advised

A brief history to give context to the ongoing debate pitting Emgwen MP Kosgey proposed amendment to cap the public debt at Kshs. 6Trillion, and Treasury’s response of a Kshs. 9Trillion ceiling. (Data from CBK, KNBS);

• In December 2002, President Moi left a Public Debt of Kshs. 626Billion (Domestic Debt Kshs. 255B, External Kshs. 371B), with a GDP of Kshs. 1.03Trillion.
• In March 2013, President Kibaki left a Public Debt of Kshs. 1.7Trillion (Domestic Kshs. 943B, External Kshs. 826B), with a GDP of Kshs. 4.7Trillion.
• In June 2019, the Public Debt (as per CBK) was Kshs. 5.7Trillion , with a Nominal GDP approximated at Kshs. 9.2Trillion.

So, despite the challenges, Kenya has over the years tried and maintained a ‘Public Debt to GDP’ ratio of 40% – 60%, though currently exceeding the legally required 50% of GDP as per Public Finance Management regulations 2015.

But, the proposed Treasury ceiling of Kshs. 9Trillion by June 2023 grossly assumes the economy will grow to about Kshs. 20Trillion by 2022! Statistically improbable, and realistically impossible, in the prevailing economic environment. For, even if Kenya was to – somehow miraculously – maintain the projected growth rate of 6%, the Nominal GDP would be at best Kshs. 12Trillion by end of 2022. Surely, not enough to sustain a Kshs. 9 Trillion public debt.

We therefore strongly opine that Public Finance Management Regulations 2015 should not be amended without fiduciary prudence and public participation.