18 April 2017

Kenya: IMF Warns Kenya Over Ballooning Public Debt

The International Monetary Fund is concerned about Kenya's growing public debt.

The Fund -- whose officials led by Benedict Clements visited the country from April 3 to 13 to carry out a review of the government's progress and commitment on the implementation of various economic reforms -- underscored the need for the government to readjust its spending plan to free more resources to address the drought situation, which has seen food prices increase.

The IMF team urged the National Treasury to apply its fiscal policy instruments (taxation and expenditure) to deal with the biting drought, which has been declared a national disaster.

The Fund's quarterly review programme is meant to determine Kenya's eligibility to take up a $1.5 billion contingency loan to address external shocks.

"Discussions focused on macro-economic policies and structural reforms aimed at ensuring the sustainability of investment-driven, inclusive growth," said Mr Clements, division chief for the IMF's Fiscal Policy and Surveillance Division.

"The authorities reiterated their commitment to macroeconomic policies that would maintain public debt on a sustainable path, contain inflation within the target range, and preserve external stability," he added.

Kenya's public debt is currently estimated at Ksh3.6 trillion ($36 billion) with debt-service to revenue-ratio standing at 34.7 per cent against the threshold of 30 per cent. Inflation has surpassed the government's upper limit target range of 7.5 per cent to reach double-digit figures.

The growth in the general price levels of goods and services for the month of March stood at 10.28 per cent compared with 9.04 per cent in February.

"The team also welcomed the authorities' plans to accelerate reforms aimed at mobilising revenue to support appropriate delivery of government services at the national and county level and increasing the efficiency, transparency, and accountability of public spending," said Mr Clements in a statement after the conclusion of the team's 10-day visit.

In the 2017/2018 budget, Treasury Cabinet Secretary Henry Rotich used taxations measures to address the rising cost of living by exempting bread and maize flour from VAT and abolishing import duty on maize for a period of four months.

Mr Rotich also allocated Ksh6.3 billion ($63 million) to finance irrigation activities in the country and Ksh4.1 billion ($41 million) to subsidise procurement of fertiliser in the next financial year, which starts on July 1.

Kenya had made a commitment to the IMF when negotiating for the $1.5 billion contingency loan to control the fiscal deficit during the run-up to the August 8 election.

However the commitment was put into question after the Cabinet approved salary increases for civil servants in February that will cost Ksh100 billion ($1 billion) from July 1.

Last year, the IMF, through a report presented to the executive board on May 6, 2016, said Kenya is among countries that exhibit large increases in wage bill spending in the run-up to elections.

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