THE government can now borrow Sh1.2 trillion from external sources after outgoing MPs passed a motion to raise the country's external indebtedness.
Before breaking, the house passed the motion by Finance minister Njeru Githae seeking to raise the country's external debt ceiling from Sh800 billion to Sh1.2 trillion.
The minister argued that this is necessary to enable the country access the required funds for infrastructure projects such as roads, water and energy.
Githae announced that the country intends to borrow more than Sh350 billion in the next five year from external sources to fund key projects under the Vision 2030 economic plan.
"We also need to increase the ceiling to accommodate new programmes and project loans that we intend to borrow over the next five years of the medium term plan, that is from 2013 to 2017 and also under the second plan under Vision 2030," Githae said.
The crucial motion also enabled the government to contract essential external loans, some of which are at advanced stages of negotiations with development partners.
At the time of setting the ceiling, the Government's external debt stood at Sh480 billion at the rate of Sh78 to the US dollar which was prevailing at that time. However Since then repayments have been effected and new loans have been contracted and as at November 2012, the total debt stood at 771 billion.
Githae raised concern that the total debt is very close to the Sh800 billion ceiling blaming this on the depreciation of the shilling against major currencies which Kenya's debts are denominated.
"It is therefore necessary to raise the ceiling to comply with the law," the minister said.'The minister however assured that the government will retain policy of borrowing on concessional terms maintaining that over 90 per cent of the projected external borrowing will be on concessionary terms.
Githae added that the high ceiling is for planning purposes only arguing that the loans to be contracted will be subjected to scrutiny by the National Assembly as per the Public Finance Management Act.
He explained that the increased debt level will help to avoid the need to have to review the ceiling frequently on account of exchange rate fluctuations.
Kenya's external debts are mostly in US dollars, Euros and Japanese Yen with the exchange rates between these currencies and the shilling fluctuating mostly upwards.