The Parliamentary Budget Office (PBO) has instructed that rising the debt ceiling to Ksh9 trillion as recommended in amendments to Public Finance Management (PFM) restrictions will drastically diminish allowances to counties.
On June, public debt stood at Sh5.81 trillion, correspondent to 61.8 percent of the Gross Domestic Product (GDP) and higher than the 50 percent limit in the PFM restrictions.
A report organized by the PBO and submitted to Senate says, Kenya’s high level public debt limits the window for future borrowing and increases susceptability to fiscal risk and likely debt problem, it may also generate extremely serious consequences to fiscal stability and sustainability of the 47 county governments.
The PBO further remarks that increasing the debt ceiling as suggested by the National Treasury will lead to an increase in external borrowing mostly from commercial authorities that are more costly and will further diminish the percentage of adequate revenue accessible to counties in financial year 2020/21.
“The recommendations to open up the debt ceiling to Sh9 trillion will further decline the percentage of unprejudiced share. There is no proof demonstrating whether the debt ceiling delivers a window for national government warrants of borrowing to county governments,” the document reads.
The PBO is a non-partisan skilled office of Parliament, whose major role is to submit professional duties on budget, finance and economic data to parliamentary commissions.
Its opinion is founded on the certainty that under Article 203 (1) of the Constitution, public debt is the second charge on the Consolidated Funds after national interests and is followed by the requirements of the national government.
The interests of county governments rank a distant fourth.
The document further remarks that allocations to interest payments accumulated at six percent between financial years 2014/15 and 2019/20, reflecting ascending pressure on the government’s capacity to compensate loans.
“Growth in debt repayment hence means there is limit to be shared between the national and county governments, hence the drop in projected allocations to counties in financial year 2019/20. This will have direct implications on the level of funds that counties can commit to improve service delivery.” the PBO says.
It further warns that amending the regulations will be against the East Africa Community treaty (EAC).
Kenya is a signatory to the EAC Monetary Union Protocol that provides that in the convergence criteria, member countries will endeavour to achieve a public debt ceiling of 50 percent of the GDP in Net Present Value (NPV) terms by 2021.
Currently, the PFM regulations provide that the national public debt shall not exceed 50 percent of GDP in net present value terms.
But Treasury wants this amended and replaced with a numerical set limit of Sh9 trillion, which effectively does away with the provision of net present value of total public debt.
With the National Assembly having already approved the Treasury proposal, the onus is on the Senate.
A joint sitting of the Senate committees on Delegated Legislation, and Finance and budget, will make a decision on Monday in a report to be approved by the House.
The decision will be on whether to go the way of the National Assembly or oppose to the suggestion.
A rejection of the regulations by the Senators will mean the Treasury will have lost the debate and that the status quo will continue.
The county allocation as a proportion of ordinary revenue has been an average of 22 percent from financial year 2014/15 to 2017/18.
Nevertheless, this dropped to 18 percent in the year 2018/19 and reduced further to 17 percent in the year 2019/20.
It is also significant to note that the fair share to county governments has consistently been dropping from a high of 4.40 percent of GDP in financial year 2013/14 to a low of 2.94 percent of GDP in the year 2019/2020, according to data from the National Treasury.
The National Teasury further projects that the equitable share to counties will further drop to 2.61 percent in the year 2020/21and 2.20 percent in the year 2022/23.
Other than the Constitution, the EAC treaty and the PFM act, 2012 and it’s regulation of 2015,public dept is also provided for the repealed internal Laons Acts and the External Laons Acts.
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