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.
Sponsored by the Leader of the Majority Kimani Ichung’wah, the Bill 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.
Mr Ichung’wah noted that the Bill allows the Government to manage its current debt amounts without hurting growth.
This will be done by requiring the Cabinet Secretary for Treasury to take measures to ensure that within five years of the date of enactment of the Bill, 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 Bill provides that the Cabinet Secretary for Treasury will submit to Parliament a report on any breach of the debt threshold.