The National Assembly will have the final say on borrowing and guaranteeing of loans by the national government as President Uhuru Kenyatta inches closer to signing the Public Finance Management (Amendment) Bill 2020 into law.
The Bill, which is now on the President’s in-tray, seeks to provide stringent measures to control Treasury’s appetite for loans, which has seen public debt rise to Sh6.2 trillion by December 2019, according to the Central Bank of Kenya (CBK). As of June 30, 2017, it stood at Sh5.4 trillion according to the annual national debt management report by the Treasury. It now means that the Treasury will only borrow money for the budget as approved by MPs and for allocations also approved by the House.
“The national government may borrow money, only for the budget as approved by Parliament in accordance with this Act and shall not exceed the limit set by Parliament,” the Bill says.
By the time retired President Kibaki was leaving office in 2013, the public debt stood at about Sh1.6 trillion.
However, the entry of Jubilee administration in March 2013 has seen the public debt soar over the years. Already, the budget read on June 11 has a deficit of about Sh1.3 trillion, meaning that the government will borrow more to finance the Sh2.79 trillion estimates.
The allocations for the repayment of the loans must also be as approved by parliament.
“A public debt incurred by the national government is a charge on the consolidated fund, unless the CS determines by regulations approved by Parliament that all or part of the debt is a charge on another public fund,” the Bill says.
According to the Bill, the Treasury Cabinet secretary should ensure that the proceeds of any loan raised nationally are paid into the Consolidated Fund or any other public fund established by the national government or any of its entities in line with the PFM (national government) Regulations.
Although the Treasury has maintained that the controversial Sh250 billion Eurobond of 2014 was deposited directly at the Central Bank of Kenya’s Consolidated Fund, reports indicate that it was deposited in private banks in the US from where the government accessed the cash.
The borrowed money will also in future be disbursed directly to the suppliers where it is a government-to-government loan and is raised for financing goods and services provided by a supplier outside the country.
In guaranteeing and borrowing money, the national government shall ensure that its financing needs and payment obligations are met at the lowest possible cost while ensuring that the overall level of public debt is sustainable.
On Thursday, it was evident that the President would sign the Bill together with the stringent borrowing rules as he did not include them in his reservations in his June 9, 2020, memorandum back to the National Assembly.
In the memorandum that was approved by the MPs on Thursday afternoon before proceeding on a short recess, the President only had issues with the amendment to section 24 (1) of the PFM Act that gave the Parliamentary Service Commission (PSC) permission with the approval of the National Assembly, powers to create a parliamentary fund.
However, when it was taken to the President for assent, he declined on account that it may lead to duplication of funds intended for Parliament since one is already established.
The President also argued that it may lead to the violation of the principle of separation of powers between the legislature and the executive on the management of public funds.
Though the President did not have an issue with the creation of a parliamentary fund, he advised the MPs that such a fund shall be defined and its purpose limited to cater for such funds as the Parliamentary Mortgage (Members) Scheme Fund and Parliamentary Mortgage (Staff) Scheme Fund, which was the intention of the Bill, according to House Speaker Justin Muturi.
The others are Parliamentary Car Loan (Members) Scheme Fund, Parliamentary Car Loan (Staff) Scheme Fund and the Parliamentary Catering Fund.
All the other funds except for the Catering Fund had legal frameworks.
In 2018, Alego Usonga MP Samuel Atandi had also proposed an amendment to the PFM Act to declare illegal the acquisition of commercial loans such as the Eurobond as they are too expensive to repay.
But the proposal did not see the light of the day.
Currently, the Parliament has no role in debt procurement as well as its management as it is only tasked with putting a ceiling on how much the government should borrow. The ceiling as now is Sh9 trillion from 50 per cent of the gross domestic product following an amendment to the PFM (National Government) Regulations towards the end of last year.
The annual debt management report of the National Treasury predicts that the country’s public debt will hit above Sh7 trillion by June 2022 when President Kenyatta leaves office after his second and final five-year term.
Saturday, Mr Atandi noted that the country is better off with multilateral and bilateral loans, which he said are relatively cheaper and have longer repayment periods.
“The accumulation of public debt without clear investment returns poses the risk of debt distress since significant proportions of resources will be channelled to servicing maturing commitments both locally and internationally,” he says.
Amani National Congress party leader Musalia Mudavadi has also faulted the government for being on a spree of incurring expensive commercial loans for grandiose projects with no immediate returns and extremely short grace repayment periods.
“The projects cannot repay themselves. It is a bad investment for the economy,” he said Saturday.