The National Treasury has called for the amendment of the Public Finance Management (National government) regulations of 2015 in order to make clear the debt limit in Regulation 26 (1) (C) that only cites external public and publicly guaranteed external debt.
The Proposed Amendment
External debts cause higher financial risks than domestic debts hence the need to set a limit for these debts.
Kamau Thugge, the principal secretary told Parliament’s committee on Delegated Legislation that the regulation that needs to be changed in accordance with the net present value of debt states: “The National Public debt shall not exceed 50 per cent of the gross domestic product (GDP) in net present value terms”
“The Net Present Value (NPV) of debt only deals with external debts because they have a concessional component to it. We want it to be amended to reflect this because the debt sustainability ratios that IMF and WB talks about are only on the external debt,” he said.
Mr Thugge also said the amendment is supported by the World Bank’s Country Policy and Institutional Assessment index that creates the thresholds for different nations. With regards to this index, Kenya scores 3.83 compared to the maximum of 5 a rating that considered strong.
For Kenya’s external debt to be sustainable, the relevant threshold includes 50 per cent NPV of debt to GDP ratio, 200 per cent NPV of debts-to-export ratio and 300 per cent NPV of debt-to-revenue ratio.
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