Parliamentary Budget Office warns Ruto over IMF reforms
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Parliamentary Budget Office (PBO) warns President Ruto over reforms being proposed by IMF that they will hurt Kenya's economy
Parliamentary Budget Office (PBO) warns President Ruto over reforms being proposed by IMF that they will hurt Kenya’s economy.
The International Monetary Fund (IMF) is pushing for fiscal consolidation as part of its loan agreement with Kenya, and the Parliamentary Budget Office (PBO) has expressed concern that these measures could impede the expansion of the economy.
Reduced government non-priority spending, reduced fuel, food, and electricity subsidies, reduced tax incentives, increased tax collection, privatization of a select number of state-owned enterprises (SOEs), and reduced bailouts for Kenya Airways are just a few of President Ruto’s fiscal consolidation plans.
The goal of Ruto’s government’s fiscal consolidation is to enable it to reach its deficit financing targets of 3.5% by 2026/2027 and 5.8% of GDP in 2022/2023.
President Ruto’s fiscal consolidation will diminish economic output, which will hurt the economy more than it will assist, according to the PBO, a significant office that counsels lawmakers on fiscal issues.
The office argued that cutting government spending will always result in decreased output and urged the President to find the correct balance so that fiscal consolidation may be implemented without impeding economic growth.
“Despite the perceived gains of fiscal consolidation on debt accumulation, conventional wisdom indicates that this is likely to have a contractionary effect on economic activity, at least in the short run,” said PBO acting Director Martin Masinde.
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“Economic theory heralds that in order to spur economic production in times such as what Kenya is currently facing, the economy requires injections into the financial system. The strategy adopted by the new administration of fiscal consolidation is in contrast,” he added.
In 2023/24, President Ruto plans to spend Sh3.641 trillion in which he has prioritized education, health, infrastructure, and national security, apportioning a significant increase to their budgets and underlining the pivotal role he expects the sectors to play in enhancing Kenya’s socio-economic growth.
The National Treasury expects to collect Sh2.89 trillion in revenues in 2023/24 to fund this spending, a 15.1 percent increase from the estimated Sh2.51 trillion estimated to be collected in the current financial year, which will be supported by a retinue of new tax measures.
PBO has advised the government to implement its privatization plan alongside a strategy of improving the financial status of struggling SOEs in order to derive long-term benefits, adding that privatization can realize proceeds worth Sh30 billion.
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