Kenya sets 2016/17 budget deficit at 9.3% of GDP, but likely to fall

By Duncan Miriri

NAIROBI, May 4 (Reuters) – Kenya will set a budget deficit equivalent to 9.3 percent of its gross domestic product for the fiscal year starting in July, but expects the actual level to be lower due to sluggish spending, the Treasury said.

Typically, Kenya forecasts a high deficit but fails to spend as much as predicted.

In its budget policy statement, the Treasury said that “going by historical absorption uptake” the actual budget deficit would likely be 6.9 percent of GDP, a level previously flagged.

However, that explanation is still unlikely to soothe investors who have been worried by a stubbornly high deficit in East Africa’s biggest economy.

In fiscal 2015/16, the original forecast deficit was 8.7 percent of GDP, although the new forecast for the actual figure is now put at 7.9 percent – a level analysts say is still hefty.

Finance Minister Henry Rotich is due to present the new budget to parliament in June.

“With some concern over rising debt levels, publishing an outsized budget deficit projection – even if the actual outcome is anticipated to be better – does not necessarily help sentiment,” Standard Chartered economist Razia Khan said.

Concerns about Kenya’s rising debt levels remain despite its “promising growth outlook,” she said, after the Treasury forecast the economy would expand by 6.0 percent in the calendar year 2016 from 5.6 percent in 2015.

In fiscal 2016/17 the government is expected to borrow externally a net 459 billion shillings ($4.57 billion), equivalent to 6.2 percent of GDP, the policy statement showed. The Treasury said that figure would fall sharply if spending were lower than the maximum anticipated.

Net domestic borrowing is expected to be 241 billion shillings ($2.4 billion), equivalent to 3.3 percent of gross domestic product, the document said. This is not expected to change even if the deficit comes in lower than forecast.

 

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