Treasury hard put to meet IMF loan terms

Treasury building in Nairobi. FILE PHOTO | NMG 

By KEVIN MWANZA

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Summary

• A Budget Review and Outlook Paper (BROP) released in September showed that fiscal deficit could rise to 7.9 per cent in the 2017/18 fiscal year after revenue collection fell 3.7 per cent short of target, while expenses were higher than expected.
• The government had set a target of 6.2 per cent of gross domestic product (GDP) for the current fiscal year, down from 9.6 per cent last year.
• Global rating agency Moody’s warned earlier last month that it could downgrade Kenya’s credit scores due to pressure from the country’s rising debts.

The Treasury’s efforts to contain the fiscal deficit and meet the International Monetary Fund’s (IMF) Standby Credit Facility target will be elusive under the current political climate, Stratlink Global has said.

A Budget Review and Outlook Paper (BROP) released in September showed that fiscal deficit could rise to 7.9 per cent in the 2017/18 fiscal year after revenue collection fell 3.7 per cent short of target, while expenses were higher than expected.

The government had set a target of 6.2 per cent of gross domestic product (GDP) for the current fiscal year, down from 9.6 per cent last year.

A further lower target of 3.7 per cent for the 2018/19 year set for IMF’s Standby Credit Facility would even be harder to meet, Stratlink Global said.

A prolonged electioneering period that threatened to turn violent after the Supreme court annulled the August 8 vote and called for a new one has made it difficult for the Treasury to focus on fiscal consolidation.

“Our main concern is that protraction of the electoral cycle and political rhetoric are eclipsing more pressing policy concerns that ought to be at the forefront of public debate,” the consultancy said.

READ: Moody’s puts Kenya rating on review for downgrade over rising debt

“The country is likely to face challenges on the fiscal front in the coming quarters.”

The lack of fiscal prudence during this political charged period is seen hurting revenue targets and could push the public debt to GDP ratio to 59.0 per cent, from a target of 51.8 per cent.

Global rating agency Moody’s warned earlier last month that it could downgrade Kenya’s credit scores due to pressure from the country’s rising debts.

ALSO READ: Debt, budget gap concern analysts

The Treasury debt burden stood at 56.4 per cent of GDP as of June. A rating’s downgrade could affect the country’s perception among investors on the global markets and may push up interest rate on State foreign denominated debt.

“This (debt level) is not a critical level,” Julians Amboko, senior analyst at Stratlink Global, told Business Daily. “But for investors it’s all a matter of perception and rates in other markets.”