On Wednesday, Parliament unanimously voted to amend the law that restricts public debt at half of the gross domestic product (GDP), effectively paving way for the Treasury to borrow more.
In a notice to parliament, the Treasury argued that the country has little room to raise taxes and therefore needs to raise the debt ceiling to avoid derailing the budget for the financial year that started in July.
“Maintaining the current debt ceiling limits the ability of government to fully implement the 2019/20 budget and subsequent years,” Ukur Yatani, the acting Treasury Secretary told the National Assembly’s Committee on Delegated Legislation.
“There is no scope to raise taxes to close the fiscal deficit without negative effects on the economy,” he added.
With the cap for State borrowing now out of the way, the Treasury is now free to borrow more in line with its target of increasing public debt to Sh9.1 trillion in the year starting July 2023 from Sh5.7 trillion in June.
The means the government will also go slow on tax increases, which have formed a key plank in raising government revenues.
President Uhuru Kenyatta is the face of increased public debt
Since President Uhuru Kenyatta came to power in 2013, there has been a jump in government borrowing, a rise that some politicians and economists say is saddling future generations with too much debt.
The government has, however, defended itself saying the country must invest in its infrastructure, including roads and railways.
Kenya’s public debt as a percentage of GDP has increased to 55% from 42% under President Kenyatta reign. The increased debt has seen Kenya commit more than half of its taxes to repaying loans, leaving little cash for building roads, affordable housing and revamping the health sector.
In the year ended June, Kenya spent Sh826.20 billion ($8.262 billion) on debt repayments or 55.4%of the Sh1.49 trillion (14.9 billion) tax collected in the period.
