By Susan Nyawira, NAIROBI Kenya
Kenya's debt ratio
compared to the value of goods and services produced in the country is fast
rising, a trend that Credit rating firm Moodys says raises concern. Graph showing Kenya's surging debt.
It
projects the country's debt and interest burdens to peak to 72.6 per cent of
GDP and around 28 per cent of revenue by 2023, up from 65 per cent in 2020.
This,
the firm said, could increase financing risks unless Kenya delivers on its set
ambitious fiscal consolidation targets as part of the IMF program.
The
projection is an indication that the country's debt will continue to balloon,
having crossed the Sh7 trillion mark in 2020 up from Sh5.81 trillion in 2019.
It
has been rising by almost Sh1 trillion annually in the last six years, having
jumped to Sh5.04 trillion in 2018 from Sh4.41 trillion in June 2017.
Kenya
plans gradual fiscal consolidation that will limit the deterioration in the
sovereign's debt and interest burdens.
The
reports indicates that in the near term, fiscal consolidation will rest
primarily on the efficacy of tax measures already taken by the government and
the withdrawal of pandemic-related spending.
Already,
the reversal of pandemic-related tax cuts led to improved revenue collection in
the second half of the fiscal year ending June 30 2021.
In
April 2021, the Kenya Revenue Authority (KRA) surpassed its monthly collection
target, for the fifth time in a row.
The
taxman collected Sh176.6billion in April against a target of Sh170.1billion
Moody's observes that the removal of several value-added tax (VAT) exemptions and the introduction of a minimum alternative tax will boost corporate income tax collection, further broadening the tax base.
Kenya
intends to reduce the fiscal deficit further by reducing recurrent spending
while aiming to prioritise key infrastructure projects, before undertaking
further measures to broaden the tax base in later years of the IMF program.
However
Moody's notes that Kenya's mixed track record in terms of fiscal consolidation
suggests achieving the government's ambitious fiscal consolidation targets over
a multi-year timeframe will prove difficult.
These
institutional challenges are reflected in the government's monotonous track
record in terms of fiscal policy effectiveness, which resulted in a narrowing
revenue base and larger-than-budgeted fiscal deficits in three of the past four
years.
Taking
into account these challenges, Moody's expects the fiscal deficit to narrow
gradually, from 8.7 per cent of GDP in fiscal 2021 to 6.8 per cent of GDP by
fiscal 2023.
Moodys
gave this forecast while affirming Kenya's rating at B2 and maintaining it's
negative outlook due to significant risks to the government's current efforts
to reduce its fiscal deficit and liquidity risk.
According
to Moodys, the Kenyan government has continued with a monotonous track record
in delivering fiscal consolidation and achieving revenue targets therefore
presenting significant risks to it's fiscal outlook.
“An
inability to deliver on planned fiscal consolidation will leave Kenya
vulnerable to tightening financing conditions,” Moodys said.
The
decision to affirm the B2 rating incorporates Kenya's weak fiscal metrics, as
well as considerable governance challenges.
It
also takes into account Kenya's fundamental economic strengths including its relatively
large and diversified economy with high growth potential, which provides some
absorption capacity to economic shocks, as well as its relatively deep domestic
financial markets which support domestic, local currency debt issuance.
Moodys
notes that the decision to maintain the negative outlook primarily reflects
downside risks to the fiscal outlook.
No comments:
Post a Comment