IMF: Reduce Sh 524b budget deficit as inflation hit 10.3 percent

Mr Benedict Clements, of IMF asks Kenya to reduce the Sh 524.6 billion budget deficit envisaged for 2017/18. PHOTO/COURTESY
By ABDULHAKIM SHERMAN
newsesk@reporter.co.ke
Inflation in the country has increased to 10.3 percent by the end of March, reflecting the reduced supply of key staple food items as a result of drought, the International Monetary Fund (IMF), has said.
The international lender said the reduced supply of key staple food items is expected to decline as agricultural production returns to normal levels with the onset of the long rains.
The inflation rate in Kenya was recorded at 6.02 percent in July of 2013 according to the Kenya National Bureau of Statistics.  The latest inflation rate shows a more than 4 percent rise.
The IMF has also asked the Kenya Government to reduce the budget deficit envisaged for 2017/18 and beyond as this will help the country’s debt get on a declining path.
Prices of basic commodities like milk, sugar, maize and other products have since been on a sharp rise.
On March 30, 2017 Finance Cabinet Secretary Henry Rotich, read Jubilee government’s budget where he said the fiscal deficit for 2017/18 is Sh 524.6 billion equivalent to six percent of the GDP and will be financed through borrowing from both external (Sh 256b) and domestic (Sh 268.2b) resources.
A team from the IMF, led by, Mr Benedict Clements, visited Kenya from April 3 to 13, 2017, to conduct consultations with the government and review its monetary policy.
“The team urged the authorities to move forward with the substantial reduction in the budget deficit envisaged for 2017/18 and beyond, which will help put the debt on a declining path as envisaged under the program,” a statement from Mr Clements said.
During the visit, the team met with the Cabinet Secretary for the National Treasury, Mr. Henry Rotich; the Governor of the CBK, Dr. Patrick Njoroge; the Principal Secretary for the National Treasury, Dr. Kamau Thugge; the Deputy Governor of the CBK, Ms. Sheila M’Mbijjewe, and senior government and CBK officials.
The IMF staff also had discussions with civil society organizations, representatives of the private sector, and development partners.
The IMF team also reiterated its concerns regarding the legislated limits on deposit and lending rates introduced by the government last September.
“Preliminary information suggests that these controls have had unintended negative consequences on the availability of financing for small and medium-sized enterprises, with the risk of reversing the remarkable increase in financial inclusion observed in recent years,” the IMF said.
The international lender added interest rate controls are undermining the effectiveness of monetary policy aimed at ensuring price stability and supporting sustainable economic growth.
Based on the preliminary findings of the IMF mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.
However, the IMF mission noted that Kenya’s economy has continued to perform well, with real GDP growth reaching 5.9 percent in the first three quarters of 2016, up from 5.6 percent in 2015.
It said the growth was supported by public investment spending, favorable weather in the first half of 2016, and a pick-up in tourism
“Discussions focused on macroeconomic policies and structural reforms aiming to ensure the sustainability of investment-driven, inclusive growth,” Mr Clements said.
He said the authorities in Kenya reiterated their commitment to macroeconomic policies that would maintain public debt on a sustainable path, contain inflation within the target range, and preserve external stability.
“To that end, the IMF staff team urged the authorities to achieve the fiscal deficit target envisaged under the program for 2016/17, which accommodates a substantial increase in foreign-financed public investment,” he said.
On March 14, 2016, the Executive Board of the International Monetary Fund (IMF) approved a US$1.5 billion to Kenya.