President William Ruto has signed the Public Finance Management (Amendment) Bill into law.
The Bill sets the threshold of borrowing at 55 per cent of the Gross Domestic Product (GDP) in present value terms.
This is a departure from the current numerical debt ceiling with a percentage of debt to the GDP. It means the Government may now exceed the threshold — by not more than five per cent — in times of extreme economic circumstances.
The law provides a definition of public debt by including the principal, interest payments and all financial obligations attendant to the issuing of loans by the Government. This aligns public debt to the provisions of the Constitution, especially Article 214.
The new law will require the Cabinet Secretary for Treasury to take measures to ensure that within five years of the date of enactment of the law, public debt is reduced to sustainable levels in line with the set debt threshold.
This will protect the country from sudden reduction of critical social spending, food security and poverty reduction. It will also protect infrastructure spending to ensure Kenya’s long-term development and economic prospects are preserved.
In a bid to ensure that debt remains below the set threshold, the law provides that the Cabinet Secretary for Treasury will submit to Parliament a report on any breach of the debt threshold.
Elsewhere, the Cabinet has approved an additional Sh4 Billion for coffee farmers. This means farmers will now earn Sh80, a kilogramme of cherry, up from the current Sh20 a kilogramme, as an advance payment.
The funds are in addition to the Sh3 billion released earlier.
The Government will also deliberately search for better markets for farmers by inviting world-renowned coffee chains to Kenya. This will reenergise the Nairobi Coffee Exchange, which has witnessed depressed prices and low sale volumes at the auction.
The Cabinet also approved the Supplementary Budget, which contains 10 per cent reduction across ministries. It follows government efforts to rationalise its budget — by cutting down unnecessary expenditures such as foreign and local travel, training, research, refurbishment of buildings, hospitality supplies, routine maintenance and general supplies among others — by more than Sh71 billion.
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