IMF says in broad agreement with Kenya on deficit reduction plan

The International Monetary Fund is in broad agreement with the Kenyan government on the main aspects of a fiscal deficit reduction plan, the fund said late on Tuesday.

The finance ministry plans to set a budget deficit of 4.9% of GDP in the fiscal year to June 2021, down from 6.3% this financial year.

The plan could culminate in the deficit dropping to below 4%, the IMF said in a statement released at the end of a two-week mission to Kenya. It “could be supported by a fund arrangement,” the fund said.

Kenya is keen to secure a new stand-by credit agreement with the IMF after the previous one expired in 2018.

A key impediment to the deal was removed last November when the government repealed a cap on commercial lending rates. Bankers and the IMF had demanded its removal in order to boost credit growth to small and medium-sized businesses.

There was no comment from either the IMF or the government on when a new deal was likely to be reached.

President Uhuru Kenyatta’s government has been criticised by voters for borrowing heavily since coming to power in 2013, and his administration was forced to raise its borrowing ceiling last year after breaching initial targets.

Kenya’s fiscal deficit, which peaked at 9.1% of GDP in the 2016/17 financial year, has been partly driven by higher spending on infrastructure projects including a new railway financed by China.

Fiscal gaps have been accompanied by the consistent failure of the Kenya Revenue Authority (KRA) to meet revenue collection targets.