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CS Rotich raises budget deficit forecast

09 June 2016, 08:22

Nairobi - Kenya's budget deficit for the fiscal year 2016/17 is likely to be more than 9 percent of gross domestic product (GDP), based on a forecast given by its finance minister on Wednesday.

Henry Rotich did not give a percentage in his budget speech, but said the deficit would be 691.5 billion shillings ($6.9 billion), close to a 689.1 billion shillings forecast in April which the ministry estimated at 9.3 percent of GDP.

In its April statement, the finance ministry said the actual deficit in 2016/17 would probably be around 6.9 percent of GDP, because ministries often struggle to spend their allocations.

"The failure to consolidate the fiscal balance any faster will be of some concern to markets," Standard Chartered economist Razia Khan said. "Kenya’s accumulation of external debt has outpaced its ability to generate faster export growth to repay this debt."

However, the minister, who said the economy would grow 6 percent in 2016, sought to offer reassurance about borrowing.

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"Kenya's public debt remains sustainable," he said, adding net present value of public debt to GDP was below 50 percent and posed a "low risk of debt distress" based on assessments by the government, the World Bank and the International Monetary Fund.

"We remain committed to bringing the fiscal deficit down gradually to below 4 percent of GDP in the medium term," he said.

In the 2015/16 fiscal year ending this month, the forecast deficit was 8.7 percent of GDP, but has since been revised down.

"Our target to generate 1 million new jobs remains. In 2016, we target to grow by 6 percent and by 7 percent in the medium term," he said. This compared with 5.6 percent growth last year.

The minister also outlined measures aimed to boost revenue collection, including the potential introduction of a presumptive tax for those in the informal sector, which usually fall under the radar of the revenue authority.

"If everybody paid their fair share of taxes we would be in a better position to lower tax rates," Rotich told lawmakers.

- Reuters


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