The Government of Kenya is committed to pursue fiscal consolidation, to provide efficient service delivery, to support the Big 4 agenda, and to contain public debt.
However, there have been challenges emanating from the decrease in revenue collection, rising cash demands from counties and need to fund its development agenda.
These factors threaten to cause macroeconomic instability and fiscal slippages.
In a report released by the World Bank, Kenya ought to make improvements in several fiscal aspects. Revisions include changes in government spending, reducing foregone revenue, and improving debt management.
These changes would allow the country to sustain debt, promote service delivery and fund development.
Changes in government spending
While most of the funds are distributed well across both human capital and infrastructure, the report reveals that there are deficiencies in Public Investment Management (PIM). The shortcomings manifest through delays in payments to vendors and delayed payments to vendors.
Inefficient PIM increases the cost of projects as contractors include costs of delayed payment in their bids. Furthermore, it affects liquidity in the private sector, profitability and therefore slows economic growth.
Improved PIM will enhance private sector performance, increase private sector-led GDP growth and therefore drive fiscal sustainability.
Reducing foregone revenue
Apart from efforts by KRA to expand the tax base, the authority needs to reduce revenue lost through exemptions. “Revenue foregone due to VAT exemptions and zero-rating averages at about 3.5 per cent of GDP,” states the report. The government should revisit the real costs of exemptions and cut back on generous investment allowances on corporate income tax.
Improving debt management
The public expenditure report recommends a transparent platform to improve the issuance of government securities. Digital platforms will promote transparency and efficiency.
Moreover, it will reduce liquidity management challenges and lessen the period between auction and settlement of securities. Such will increase the economy’s trust in the government’s capacity to repay debt, therefore drive the purchase of government securities.
The report also suggests that the government should re-allocate spending on recurrent items like transfers to counties and employee compensations. Reallocation will help to reduce spending on issues that undermine the state’s ability to re-allocate resources to the Big 4 Agenda.
Related:
Treasury to Focus on Domestic Borrowing as it Seeks to Reduce Foreign Debt
Kenyan Government Has an Option to Reorganise its Debt Portfolio – CBK
