Economists at Commercial Bank of Africa say that the cuts are also likely to be unpopular, especially in county governments, adding that matching the consolidation with revenue collection reforms will help ease the pain.
The Treasury should combine the proposed fiscal spending cuts with reforms in revenue collection to avoid aggravating economic growth slowdown, economists have warned.
Treasury secretary Henry Rotich revealed last week that he was looking to cut up to Sh78 billion in the budgets of the national government and counties in a bid to plug a revenue shortfall of Sh84 billion seen in the first six months of the fiscal year.
Economists at Commercial Bank of Africa however say that the cuts are also likely to be unpopular, especially in county governments, adding that matching the consolidation with revenue collection reforms will help ease the pain.
“While consolidation may seem like a fiscal imperative at the moment, potential for a backlash from Parliament and county leadership threatens such an undertaking. Given the negative impact on growth, any adjustments need to be very tactical to avoid aggravating the slowdown,” said CBA in their weekly fixed-income report.
“A combination of both revenue collection reforms and expenditure rationalisation may help bring down the deficit without making the process painful for the public.”
Kenya has in the past struggled to make headway when attempting fiscal consolidation due to an ever-rising recurrent expenditure tab and the need to finance large infrastructure projects that are necessary to spur economic growth.
The government also has the option of borrowing more to cover the deficit, but the rate of increase in public debt has increasingly become a concern, expressed by among others, the International Monetary Fund (IMF) and the World Bank.
The country now owes Sh4.6 trillion in public debt, which is equivalent to almost 60 per cent of GDP.
In meetings held recently with a visiting IMF team in Nairobi, Treasury officials committed to cut the fiscal deficit from 8.8 per cent of GDP in the 2016/17 fiscal year to 7.2 per cent in 2017/18 and further to 5.7 per cent in 2018/19.
“This will be achieved by a combination of revenue measures and contained spending,” said IMF team leader Benedict Clements in a statement at the end of the mission.
Mr Rotich told Parliament last week that the Kenya Revenue Authority has been instructed to institute administrative measures on the customs side and domestic revenue in order to close the collection gap.
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