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Kenya: Govt to Cut Spending on Non-Priority Areas to Reduce Country’s Fiscal Deficit

Nairobi — The government is set to cut spending on non-priority areas in a bid to reduce the country’s fiscal deficit and reduce public debt in the current financial year.

Speaking during the launch of the FY 2023/24 and Medium-Term Budget preparation process Treasury CS Njuguna Ndung’u directed all Sector Working Groups to prioritize spending on growth-supporting capital projects.

“The Sector Working Groups are required to carefully scrutinize all proposed programmes for Ministries, Departments, and Agencies and ensure that they are not only directed towards improving productivity but are also aligned to the achievement of the objectives,” he said.

The move is expected to reduce government expenditures to about 22.7 per cent of GDP over the Medium-Term in line with the fiscal consolidation policy.

“The policy’s main objective is to free resources to growth-enhancing programmes by gradually reducing the overall fiscal deficit and the pace of debt accumulation,” said Ndung’u.

The CS noted that the fiscal consolidation will be supported by enhanced and innovative revenue mobilization, sustained rationalization of non-priority recurrent expenditures, and redirecting resources to finance priority growth-supporting capital projects with a high return on investment.

In the Medium-Term, the government’s fiscal framework will be anchored on the country’s real GDP growth being above 6.0 percent.

It will also be anchored on inflation being maintained within the range of ±2.5 of the target 5 per cent.

This means the government has to put in place measures to reduce the cost of living as inflation stood at 9.6 per cent in October, breaching the government’s target of 2.5 to 7.5 per cent for the fifth consecutive month.

The government also targets to improve revenue collection to over 18.0 per cent of the GDP over the medium-term.

“The government is committed to pursuing an all-inclusive growth model using the bottom-up approach. The bottom-up approach will involve supporting appropriate market, governance, regulation, and protection that will support increased production and productivity downstream and increased income upstream,” said the CS.

Ndung’u noted that the fiscal performance in the FY 2021/22 was satisfactory, largely attributed to improved operating business environment following the recovery of the economy from the adverse impact of Covid-19 pandemic.

Revenue performance recorded a growth of 22.0 per cent compared to a marginal growth of 0.3 per cent in FY 2020/21.

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