Policy Brief No. 30 of 2023/2024 on Public Debt Ceiling: The Experience for Kenya and Lessons from Other Countries

Abstract

Debt ceilings or limits are a set of rules that provide the maximum amount of debt that a government can undertake. Often, they are imposed by governments as part of measures to ensure fiscal discipline and promote debt sustainability. Once a debt ceiling has been established, the government may then decide to set its debt target either below or just at the debt ceiling. In some instances, debt targets are set below debt ceilings to create a buffer between the actual debt levels and the specified ceiling. Governments may impose debt ceilings in nominal terms (specified in absolute numbers of specific currency) or relative terms (expressed as a percentage of GDP). Countries such as Denmark, the United States of America, and Kenya use nominal debt limits. Kenya, in October 2023, replaced the nominal debt ceiling with a debt anchor ceiling, set at 55 per cent of GDP.