Treasury has Five years to Reduce debt to 55 percent of GDP

Following approval by MPs to change the debt ceiling from the current Sh10 trillion to an anchor, the Treasury has five years to reduce the nation’s debt level to 55 percent of GDP.

The Public Finance Management (Amendment) Bill 2023 was approved by MPs on Tuesday night and is now awaiting President William Ruto’s signature to become law.

In present value terms, the Bill establishes a debt anchor threshold of 55 percent of GDP.

The Bill also includes a window that cannot be higher than 5% to account for the current GDP debt ratio of 60%.

The MPs removed a provision from the Bill that would have required the Treasury Cabinet Secretary to address Parliament with an explanation if the Finance Ministry violated the debt anchor.

“The Cabinet Secretary shall, not later than five years from the date of the coming into force of subsections (2a) and (2c), take measures to ensure that borrowing by the national government complies with the threshold prescribed in subsection (2a),” Makali Mulu, the vice chairperson of the Debt and Privatisation Committee, said.

Mr. Mulu introduced additional amendments to the Bill that would require the CS to submit an annual report on the debt situation and borrowing decisions made by the national government to the National Assembly by April 30 and specify any exceptional circumstances.

The debt committee will have to take into account the Treasury CS’s report and put forth suggestions.

“The National Assembly shall discuss the report tabled by the Debt and Privatisation Committee and may pass a resolution to adopt it with or without amendments,” the changes read.

In March, the National Assembly received approval from President William Ruto’s Cabinet to raise the debt ceiling from its current cap of Sh10 trillion to an anchor set at 55 percent of GDP.