Kenya has put fiscal consolidation and debt management at the core of the financial management agenda in the 2018/19 financial year.
As a team of International Monetary Fund technocrats lands in Kenya to decide the fate of the three-year $1.5 billion standby credit facility, the government is prioritising reduction of the deficit, increase revenue collection and ensuring debt is sustainable.
Kenya is hoping that the IMF will extend the facility that helps cushion the economy from unforeseen shocks. The facility is set to expire in March.
The IMF team is visiting soon after Kenya unveiled the Budget Policy Statement in which the country projects to spend $24.9 billion during the 2018/2019 financial year, up from $22.7 billion in 2017/2018.
The increase in spending is supposed to ensure that economic growth rebounds after taking a knock from the effects of a severe drought and prolonged electioneering.
Kenya’s economy slumped last year, posting a growth of 4.7 per cent compared with 5.8 per cent in 2016. This year the government projects growth at 5.8 per cent.
Last year’s rate was the slowest in East Africa compared with Tanzania’s 7 per cent and Uganda at 5.1 per cent.
In comparison, the Rwandan economy registered 5.9 per cent growth in 2016, according to official figures. Despite the slowdown and a 4.2 per cent annualised growth in the first quarter of 2017, the growth was expected to pick up in the second half.
According to Kenya’s budget statement, prudent financial management will be at heart of public financial management as the country pursues economic growth anchored on the ‘Big Four Agenda’ to be implemented over the next five years.
Under the agenda, Kenya plans to transform the manufacturing sector to be a key economic driver contributing 15 per cent of the gross domestic product, ensure food security, provide universal health coverage and provide affordable housing.
In this pursuit, Kenya targets reduction of the budget deficit from 7.2 per cent of GDP to 6 per cent and three per cent by 2021/2022 financial year.
It is hoped that this financial consolidation will significantly aid efforts towards attaining the EAC convergence criterion targeting a ceiling on fiscal deficit of three per cent of GDP, inclusive of grants.
According to the policy statement, 60 per cent ($14.7 billion) of the total budget has been allocated for recurrent expenditure while $9.6 billion has been allocated for development.
“Part of the development budget will be funded by project loans and grants from development partners while the balance will be financed through domestic resources,” the statement added.
The EAC criterion focuses on containing the growth of recurrent expenditures in favour of capital investment so as to promote sustainable and inclusive growth.
Kenya’s efforts towards fiscal consolidation will be achieved through increased revenue collection with the government setting the target for Kenya Revenue Authority at $16.4 billion compared to $14.5 billion in the 2017/18 financial year.
The massive target for KRA comes at a time when the taxman is struggling to increase revenue collection after managing to collect $6.9 billion for the first half of 2017/2018 financial year. The authority is targeting to collect $7.8 billion in the second half.