World Bank Urges Kenya to Rethink Fiscal-Consolidation Plan

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Enterprise Television- World Bank Urges Kenya to Rethink Fiscal-Consolidation Plan

Kenya may need to recalibrate its fiscal-consolidation plans if it is to see economic growth rebound from a five-year low reached in 2017, the World Bank said.

The Government of East Africa’s biggest economy should slow the rate of expansion of recurrent expenditure, improve spending efficiency, restore the potency of monetary policy and rationalize tax exemptions to ensure its resources are fiscally sustainable, the Washington-based lender said in an economic update Wednesday.

The budget deficit more than doubled to 8.9 percent of gross domestic product in the five years through June 2017. The National Treasury wants to trim the gap to 3 percent by 2021 by cutting spending mainly on development projects rather than recurring expenses, which took up almost 99 percent of national revenue in the fiscal first half through December, the lender said.

“When you cut your development spending, you are reducing the capital stock of the economy — that has implications for long-term growth,” Allen Dennis, an economist at the World Bank, told reporters Tuesday in the capital, Nairobi.

The Treasury is targeting to shrink expenditure by 1.4 percentage points of GDP this fiscal year, of which 1.2 percentage points will be axed from the development budget, according to the World Bank. The nation’s debt is seen hitting 58 percent of GDP by end-June, from 40.6 percent in 2011-12 fiscal year.