The Senate voted on Wednesday to raise the government’s debt ceiling to Sh9 trillion shillings, as authorities abandon a limit pegged to the GDP due to a growing debt burden.
Total public debt rose to 62.3 percent of the gross domestic product in June this year, the World Bank said last week, having breached the recommended threshold 50 percent of GDP in the 2015/16 financial year.
The vote got the approval of 30 senators while seven voted against it, said Senate Speaker Ken Lusaka in a televised session.
The government desperately needed the approval to prevent it from running out of funds during this fiscal year, and to allow it to restructure the portfolio by replacing expensive commercial debt with cheaper funds from institutions like the World Bank.
Government officials say the increase in the ceiling will also unlock 421 billion shillings worth of loans with foreign development agencies, which have been agreed, but are yet to be signed due to the current breach of the ceiling.
“The National Treasury would have to cancel all of these projects and do a drastic cutback of the budget that have been allocated… as there will be a huge deficit,” the government said in a briefing note seen by Reuters.
The government would not had been able to plug a budget deficit of 6.2% of GDP, equivalent to about 635 billion shillings, in its budget for the 2019/20 (July-June) fiscal year, if the ceiling had not been raised.
The Treasury projects that total public debt will rise to 9 trillion shillings by June 2024.
“The intention to increase it (ceiling) is to create space to refinance expensive debt and shift focus from domestic debt to external debt in order to allow credit extension to the private sector,” the government said in the briefing note.
Kenya has been forced to confront the ballooning public debt after embarking on a borrowing binge in the past year to splurge on various infrastructure projects, including a railway funded by China.
“If you look at the borrowing in Kenya today, 90 percent is being done by the republic. Kenya is approaching the situation that was there in Greece,” said James Orengo, the leader of the opposition in the senate.
However, he backed the increase in the ceiling, saying it was required to buy the government time to get its house in order on the fiscal side.
“Even us as an opposition we wouldn’t want to inherit an economy that has crashed,” he said.
The higher debt limit has already been approved by the national assembly and it will now be sent to the president so he can sign it into law.
“When you are in a hole you have to stop digging so this is our only way out, so we can restructure our debt,” said Moses Kuria, a member of the national assembly from the ruling Jubilee party.