Economy
IMF Urges Kenyan Government to Make Budget Cuts
Through a communiqué released on Thursday, March 18th, the International Monetary Fund (IMF) raised concerns over Kenya’s rising debt levels and called on the government to embark on transparent, as well as efficient spending to lift growth which has been suppressed by COVID-19 shocks.
In May last year, the IMF provided $739 million in the form of an interest-free loan under the Rapid Credit Facility to help Kenya weather the initial shock. This helped to cover the cost of additional spending on health, social protection, and speeding up payments booster the economy.
In February this year, the IMF provided a Fund program to help the country recover. The new programme is meant to support the next phase of the government’s COVID-19 response, combining arrangements under the Extended Fund Facility and Extended Credit Facility. It provides for $2.4 billion in low-cost financing over the next years.
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.
“Kenya is at high risk of debt distress, thus reducing the fiscal deficit as the COVID-19 shock fades is essential,” said IMF.
The 2021 Budget Policy Statement, which was released recently, gives an overview of Kenya’s priorities and fiscal policy goals. It envisages a multi-year effort through a combination of revenue mobilization and spending rationalization measures that will reduce the fiscal deficit to below 4 percent of GDP by the fiscal year 2024/25. This will put the ratio of public debt to GDP firmly on a downward path.
The government has already begun reversing some of the extraordinary measures introduced at the start of the shock. This encompasses the temporary tax cuts, which ended at the start of 2021.
While the government projects growth to rebound to 7% in 2021 after contracting by 0.6% last year, IMF says the pressure in public health as a result of COVID-19, higher poverty, worsening fiscal and debt positions remain key challenges to achieve desired growth.
