IF the Sh425 billion agreement signed between China and Kenya this week is a loan, it will raise Kenya's external public debt to over Sh1.2 trillion, the set limit allowed to borrow from foreign sources.
The Chinese advance signed by President Uhuru Kenyatta will raise the country's external debt position to Sh1.26 trillion up from the Sh843.6 billion as at the year ending June 2013.
This means that the government cannot borrow more from external sources unless Parliament scales up the Sh1.2 trillion floor that was set in January this year.
MPs raised the ceiling from Sh800 billion, set in 2009, after the then Finance minister Njeru Githae pleaded with them arguing that it was necessary to raise it to enable the country access the required funds for infrastructure projects such as roads, water and energy.
The minister then said the country intended to borrow more than Sh350 billion in the next five year from external sources to fund key projects under the Vision 2030 economic plan.
It is not immediately clear if the Jubilee administration will freeze any new external borrowings. But judging from past records, the government is likely to ignore this ceiling.
Late last year, it emerged that the government had exceeded the ceiling for external debt. Treasury debt figures showed loans borrowed from external sources in the month of September, October and November were above the Sh800 billion approved debt ceiling.
For instance, in November, external debts were Sh24 billion more above the set ceiling totaling Sh824.58 billion. In October, these debts stood at Sh812.17 billion having risen by Sh9.72 billion from September.
Opposition leader in Parliament Jakoyo Midiwo said it is too early to comment on the Chinese deal since it is not clear if it is a loan or some of it a grant.
"The government is at liberty to come back to Parliament to ask for an increase in the ceiling," Midiwo said. Midiwo however welcomed the deal arguing that since it is for infrastructure improvement, it is good for the country.
As at June this year, the total public debt stock amounted to Sh1.9 trillion, or 51.7 per cent of GDP. Total gross domestic debt stock increased by 22.4 per cent from Sh858.8 billion as at end-June 2012 to Sh1 trillion.
In the multilateral category, the World Bank, IMF and Euroepean Investment Bank account for the largest proportion of external credit, while Japan, France and Germany are the leading creditors in the bilateral category.