Citi Research economists see budget deficit and debt stock as the main economic challenges awaiting the government to be formed after repeat presidential polls slated for October 17.
Fiscal deficit although fundable, the analysts said, remains the main weakness in the economy and needs to be tamed through budget cuts.
“We still have significant long-term concerns about the potential impact of fiscal deficits of the size recorded in recently years on the overall economic outlook for Kenya if it is not brought under control after the elections,” Citi said in Africa Economics & Strategy Weekly Monday.
“But it seems unlikely that the deficit will run out of control around the elections, even given the cost of holding the presidential re-run.”
The deficit for this financial year’s Sh2.29 trillion budget is about Sh524.6 billion. The Treasury plans to bridge the gap through Sh268.6 billion in domestic borrowing and Sh256 billion in foreign funds, further worsening the country’s debt position.
A projected slowdown in economic growth to below five per cent against Treasury’s 5.9 per cent target is likely to hurt the Sh1.7 trillion revenue collection target for this financial year, putting the Kenya Revenue Authority under immense pressure.
“Although revenue will now be under pressure for a more prolonged period than expected, and as growth slows, the reality is that new government spending, notably capital spending, will be severely constrained by the prolonged political uncertainty,” Citi analysts said.
“Although the IMF has consistently projected that Kenya will move onto a path of fiscal consolidation in recent years, the deficit has largely moved in the opposite direction into high single digits as a percentage of GDP.”
Presidential Uhuru Kenyatta is facing National Super Alliance’s Raila Odinga in a re-run next month after the Supreme Court nullified the outcome of the August 8 polls, citing “irregularities and illegalities” in the electoral process.
“The lack of economic policy debate the first time around probably reflects the reality that there is not a huge difference in terms of economic policy for the electorate to choose from,” Citi said.