Kenya's 2021/22 budget deficit target must not exceed 7.5% of GDP

NAIROBI: A Kenyan parliamentary committee said on Thursday that it will reject the government's 2021/22 budget plan if the deficit goal is set at more than the currently proposed 7.5% of GDP.

It also recommended that the finance ministry restructure some state-owned companies, especially highly indebted ones, with the aim of privatising some of them by the end of 2021/22.

Last month the finance ministry said in an update on government finances that it expected the deficit for 2021/22 (July-June) to be 7.5% of GDP, down from an expected 9.0% in the current year ending in June 2021.

The government will announce its annual budget speech in June but parliament's Budget and Appropriations Committee is required by law to approve any budget plans proposed before then.

"The committee urges the National Treasury to commit to strict adherence ... in order to avoid expanding the deficit while at the same time protecting the key growth sectors," the committee said in a report submitted to parliament on Thursday.

"Any increase of the fiscal deficit beyond what has been approved in the Budget Policy Statement for FY 2021/22 will not be approved by parliament."

Kenya's economy, like others worldwide, has been hammered by the effects of the pandemic as lockdowns introduced to curb the spread of COVID-19 have reduced public revenues and stifled growth.

The committee also recommended that the finance ministry limit net domestic financing for the year to 399.9 billion shillings ($3.65 billion), and foreign financing to 530 billion shillings.

The finance ministry is proposing overall spending for the year of 2.97 trillion shillings, up from 2.88 trillion shillings in 2020/21.

The committee also recommended that the finance ministry should consider deferring any new government projects by one fiscal year.

It urged the government to restructure state-owned companies burdened with debt but did not give more details.

Lawmakers will meet at a later date to approve or reject the committee's recommendations.

Kenya secured a debt service suspension under a G20 initiative aimed at helping poor nations weather the impact of COVID-19, and it is in talks with the International Monetary Fund (IMF) for new lending.

Last month the IMF and Kenya reached a staff-level agreement on a three-year $2.4 billion financing package, subject to IMF management approval and Executive Board consideration in the coming weeks.