IMF says Kenya risks debt distress, calls for budget cuts

The International Monetary Fund (IMF) is calling on the Government of Kenya to embark on transparent and efficient spending in order to lift growth which has been suppressed by COVID-19 shocks.

In the communique released on Thursday, the international financier raised concerns over Kenya’s rising debt levels which could compromise economic recovery on the backdrop on the health pandemic.

Kenya is at high risk of debt distress and reducing the fiscal deficit as the COVID-19 shock fades is essential,” said IMF.

Latest data from the Central Bank of Kenya (CBK) shows that as of November last year, total public debt had accumulated to hit Kshs. 7.3 trillion of which domestic debt amounted to Kshs. 3.5 billion and external debt Kshs. 3.8 trillion.

In February, IMF and Kenya agreed on a three year Kshs. 264 billion ($2.4 billion) loan to support the government’s COVID-19 response.

Without this help, Kenya would have to aggressively cut spending on investment and social programs, making it more difficult to achieve a durable and inclusive recovery.”

This came after after approving an interest free-loan amounting to Kshs. 74 billion ($739 million) in May last year under the Rapid Credit Facility to help Kenya weather the initial shock of coronavirus.

Kenya is estimated to have lost Kshs. 560B last year as a result of COVID-19.

In the 2021 Budget Policy Statement, the National Treasury targets a fiscal deficit of 4% of GDP by fiscal year 2024/25 through increased revenue mobilization and spending cuts.

The impact of fiscal consolidation would need to be softened by more efficient spending. Supported by transparent use of funds, this will help ensure that government spending is channeled to the areas where it is most needed.”

IMF expects the move to free up resources for private investment and initiate suitable conditions for durable and inclusive growth, which should allow Kenya to quickly resume progress on its development goals.

Treasury projects fiscal deficit to ease to Kshs. 930 billion or 7.5% of GDP in the financial year 2021/22, from an estimated Ksh 966.6 billion equivalent to 8.7% of GDP in the current financial year.

While the government projects growth to rebound to 7% in 2021 after contracting by 0.6% last year, IMF says pressure in public health as a result of COVID-19, higher poverty, worsening fiscal and debt positions remain key challenges to achieve desired growth.

  

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