NAIROBI, KENYA: Last week Treasury Cabinet Secretary Henry Rotich defended the government’s performance in keeping the economy steady despite various headwinds.
“We have kept our fiscal deficit at manageable level vis-a-vis our Gross Domestic Product (GDP), and shall continue to do so,” Rotich told a press briefing at Treasury Building in Nairobi, insisting that the economy was on the rebound.
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He projected it to grow in the next financial year. “Our fiscal deficit for the 2017/18 Financial Year is 6.4 per cent, down from 8.5 per cent in the 2016-2017 Financial Year,” he explained.
This is partially true. Data from Treasury’s Budget Review and Outlook paper released in September states that Kenya’s fiscal deficit for the 2016/2017 financial year amounted to Sh709 billion - equivalent to 9.2 per cent of GDP and still within the government’s 11.7 per cent target.
What the Treasury cabinet secretary did not mention however was that Kenya’s obligations have piled considerably against revenue shortfalls that will make life difficult for taxpayers in the near to mid-term.
Last week, Rotich also revealed that the government was seeking another syndicated loan, soon after negotiating a six-month extension on repayment of a sh77billion syndicated loan.
All this is set to push up the interest cost that accrues to taxpayers to disproportionate levels.
Rating Agency Moody’s last month downgraded the country’s credit rating from B1 to B status on account of the country’s increasingly precarious debt load.
In its report, Moody’s stated that Kenya’s debt is set to rise to 60 per cent of GDP over the next seven months.
This means that Kenya’s interest payments will go up making it difficult for the country to find cheap financing for it’s widening the deficit. This is bad for the private sector and taxpayers.
Faced with reduced sources of financing, the government will be forced to either turn to commercial debt, worsening a credit crunch already being experienced by the private sector or turn to concessionary loans the Bretton Woods institutions such as the International Monetary Fund which often come with austerity conditions.