In a significant move, President William Ruto has given his signature of approval to the Public Finance Management (Amendment) Bill, marking a shift in Kenya’s approach to managing its national debt. The new legislation establishes a threshold for borrowing at 55% of the Gross Domestic Product (GDP) in present value terms.
This change departs from the previous system of a numerical debt ceiling expressed as a percentage of GDP. Under the new law, the government now has the flexibility to exceed the established threshold, but not by more than five percent, in times of extreme economic challenges.
A key feature of the law is its comprehensive definition of public debt. It includes not only the principal debt but also the interest payments and all financial obligations related to government loans. This aligns public debt management with the provisions of the Constitution, particularly Article 214.
One of the law’s primary objectives is to ensure that public debt is gradually reduced to sustainable levels within five years of its enactment. This approach aims to safeguard critical social spending, food security, poverty reduction efforts, and infrastructure projects that are vital for Kenya’s long-term development and economic prospects.
To maintain compliance with the set debt threshold, the law establishes a requirement for the Cabinet Secretary for Treasury to report to Parliament in case of any breach.
In a related development, the Cabinet has greenlit an additional allocation of Sh4 billion for coffee farmers. This substantial increase in funding means that coffee farmers will receive Sh80 per kilogram of cherry as an advance payment, a substantial boost from the previous Sh20 per kilogram.
This financial support comes as part of the government’s strategy to find improved markets for coffee by inviting globally renowned coffee chains to Kenya. The move is expected to revitalize the Nairobi Coffee Exchange, which has been grappling with low prices and minimal sales volume at auctions.
The Cabinet has also granted its approval to the Supplementary Budget, which includes a 10% reduction in budget allocations across ministries. This decision aligns with the government’s commitment to streamline its budget by cutting unnecessary expenditures like foreign and local travel, training, research, refurbishment of buildings, hospitality supplies, routine maintenance, and general supplies, resulting in a budget reduction of more than Sh71 billion. This fiscally responsible approach ensures efficient utilization of resources for the benefit of the nation.
These developments mark a significant step in Kenya’s fiscal and economic management, emphasizing responsible debt management, support for critical sectors like agriculture, and prudent financial decision-making.
