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Kenya/DeficitBack
[Published: Friday June 22 2018]

Moody's sees Kenya's downgrade staying, fiscal deficit intact

NAIROBI, 22 June. - (ANA) - Ratings agency Moody’s forecasts the government is unlikely to achieve the targeted fall in fiscal deficit to 5.7 per cent of the Gross Domestic Product (GDP) in the coming fiscal year and reverse a rate downgraded chalked up early in the year.

The agency expects to see only modest improvement in revenue collection.

The Treasury said in the budget for the 2018/19 financial year that it expects fiscal deficit to come down from 7.2 per cent to 5.7 per cent, with the nominal deficit projected at Sh569 billion.

The government is pegging the improvement on higher revenue collection from the taxman—partly from revised tax rates and tax administration reforms— even as the budget grows to Sh3 trillion from Sh2.6 trillion the previous fiscal year.

“Implementation risks associated with some of the budget's revenue and spending measures will challenge the achievement of fiscal consolidation; we expect a broadly stable fiscal deficit of around seven per cent of GDP,” said Moody’s in a note on the Kenya budget.

“We also project that government debt will stabilise at just below 60 per cent of GDP. We see it as unlikely the government will reverse the erosion in fiscal metrics that had led us to downgrade Kenya's rating to B2 earlier in 2018.”

The agency added that the implementation risks stem from the budget’s reliance on a “spontaneous” increase in revenue from improvements in tax collection, and in extension of the tax base.

Further, it considers “ambitious” the effort to keep primary recurrent expenditure growth at 5.6 per cent or at par with inflation—effectively making it a flat growth.

Moody’s downgraded Kenya’s credit score from B1 in February, citing pressure from the country’s rising debts, although it also assigned a stable outlook.

The move drew sharp criticism from the Treasury, with senior officials saying that the rating analysis was not well informed and did not reflect the country’s fundamentals.

Treasury secretary Henry Rotich had earlier dismissed Moody’s rating as desk analysis, saying that the country only has contact with Standard & Poor’s (S&P) and Fitch to periodically gather data from Treasury.

Last year, the Treasury argued that import tax exemptions on key food items due to drought hurt revenue performance, while there was extra spending on the prolonged elections. - (ANA) -

AB/ANA/22 June 2018 - - -

 


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