NAIROBI: The World Bank and the IMF wants the government to cut expenditure on non-priority projects to ease pressure on the Sh2.1 trillion budget amid a high interest regime.
The Treasury last week borrowed Sh26.84 billion at 21.6 per cent through the Treasury bills, raised Sh24.97 billion at 19.06 per cent through a one-year Sh30 billion bond last month and is likely to pay over 20 per cent for the one-year, Sh20 billion amortised bond that went on sale on Monday.
World Bank senior economist John Randa yesterday said the National Treasury should exercise fiscal consolidation – cut the budget deficit and reduce further growth in debt – by scaling down on some projects and postponing others. This year’s budget deficit is Sh570.2 billion – 8.7 per cent of the Gross Domestic Product – to be plugged through borrowing.
“There is so much space to cut from the Sh2 trillion budget because there is so much duplication of functions between the national and county governments. There are also some staff (on payroll) who don’t know whether they belong to national or county government,” Randa said.
Treasury CS Henry Rotich separately told Parliament the government had downgraded this year’s growth forecast to six from 6.5 per cent in April and 6.9 per cent in January.
The World Bank also said yesterday the Kenya’s wealth [gross domestic product] will increase by 5.4 per cent, slower than its six per cent projection last December, due to depreciation of the shilling and high interest rates.
“The revision reflects the strong headwinds the economy is facing in the foreign exchange market [and] the monetary policy response to calm those fears,” the country’s largest multilateral lender said in its biannual Economic Update for Kenya. It was referring to the increase in the Central Bank Rate – the minimum rate at which commercial banks borrow from the CBK as lender of last resort and which acts as benchmark – to 11.5 from 8.5 per cent.
The interest rates have been raised to reduce volatility of the shilling, largely due to a globally bullish dollar. The shilling has depreciated by 13.83 per cent year-to-date and 15.57 per cent year-on-year through yesterday’s 103.24 units to the dollar.
The lower growth is also due to “the fact that the effect of the lower global oil prices on the wider economy was muted because of the depreciation of the shilling in 2015 and weak transmission into the wider economy,” the report said. The International Monetary Fund also said economy will expand by six per cent at most, a downgrade from 6.5 per cent in April.
“That projection was made without having information for the second quarter, but now that we have the information we are in the process of revising the numbers,” IMF resident representative Armando Morales said yesterday. “It is still realistic to expect six per cent but we need to see whether the impact of these increasing interest rates is going to (further) affect the economy.”
Treasury Principal Secretary Kamau Thugge however said the two-year, Sh77.43 billion ($750 million) syndicated loan that the government has acquired from Standard Chartered, Standard Bank and Citi Bank was priced at below six per cent.