World Bank criticises Kenya's approach to cutting fiscal deficit
SEE ALSO :Why Magufuli prefers Chinese aidKenya’s total debt stands at 57 percent of GDP, the bank said, barely down from 57.5 percent a year ago. Under pressure from the International Monetary Fund, the Kenyan government reduced its fiscal deficit by two percentage points in the financial year that ended in June, to 7 percent of gross domestic product, and has set a target of 5.8 percent of GDP this fiscal year. But the World Bank said the spending cuts approved for the period to June this year were heavily skewed towards the development budget, which was slashed by a quarter, at the expense of boosting growth. “There is a need to recalibrate the balance between development and recurrent expenditures, with the latter bearing a higher share of the expenditure containment,” the report said. The Kenyan government could cut recurrent spending by reducing state-owned firms’ budgets and by regularly auditing the government’s payroll, the bank said.
SEE ALSO :True value of the blue economy to KenyaIt attributed the upgrade to its 2018 economic growth forecast to an improved performance by the farming sector, a steady recovery in manufacturing and resilience in tourism after last year’s long election campaign had raised political risk. A narrowing current account deficit and a stable exchange rate could also boost growth, the bank said. Growth would had been faster if the government had removed a cap on commercial lending rates, the bank said, citing the cap’s constraining impact on monetary policy. The cap has also made commercial banks shy away from lending to higher-risk customers, analysts say. In June, Cabinet Secretary Henry Rotich sought to repeal the cap, at four percentage points above the central bank rate, but lawmakers blocked that attempt in August.