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Treasury outlines measures to tame growing deficit, debt

The National Treasury had projected fiscal deficit to decline to 4.1 percent of Gross Domestic Product (GDP) by fiscal year 2018/2019 from 8.9 but it has revised that to 7.1pcFILE

NAIROBI, Kenya, Feb 15 – The Government has committed to accelerate fiscal consolidation to narrow the budget deficit and stabilizing public debt but falls short on the particulars.

In a Budget Policy Statement issued by Treasury, the Government aims to reduce the budget deficit to 7.2 percent of the GDP in the 2017/18 financial year from 9.1 percent in the 2016/17 financial year, with the ultimate aim of reducing the deficit to 3 percent of GDP by FY 2021/22.

“The projected consolidation is driven more by the slowdown in ministerial expenditures and boosted by the dividends from the ongoing reforms to enhance domestic revenue mobilization,” states the policy document.

However, Government will continue to tap the international capital markets to bridge the financing gap with Treasury expected to hit the road for takers of its Sh300 billion Eurobond issue.

“Non-concessional and commercial external borrowing will be limited to development projects with high financial and economic returns.”

The Government has also committed to diversifying the currency structure of debt to “minimize the degree of foreign exchange rate risk exposure associated with internal debt portfolio.”

To boost revenue collection, Treasury has outlined various measures including overhauling the current income tax act, strengthening tax administration and expansion of the tax base.

Global credit rating firm Moody’s on Tuesday downgraded Kenya’s credit rating to B2 from B1 owing to rising debt levels and deterioration in debt affordability urging Kenya to take decisive action to stem the rapidly growing debt.

“Given a mixed track record in terms of implementation of fiscal consolidation and demands for development and social spending on the government’s budget, effective fiscal consolidation is likely to be slower than the government envisages and unlikely to be sufficient to reverse the deterioration in fiscal strength,” notes Moody’s.

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