Budget Deficits & Interest Rates Among Factors Making Govt Services Expensive – Report
A study conducted by the International Monetary Fund (IMF) has unveiled two primary factors behind the escalation of fees for diverse government services by various state agencies and institutions.
In the country report, the IMF highlighted that the decision was made due to budget shortfalls and a rise in interest rates on several loans acquired by the Kenyan government.
The document elucidates that these two elements would have expanded the fiscal deficit in President William Ruto’s initial budget of Ksh3 trillion. Consequently, there is a necessity to reevaluate the strategy.
Due to the rise in fees, it is anticipated that the government will have the ability to earmark funds for diverse programs in the upcoming second supplementary budget scheduled to be presented in Parliament in March.
Furthermore, the recent deceleration in the initiation of development initiatives was also impacted by these two factors.
“The improvement in the primary balance, which is warranted to partly offset the higher interest costs and maintain the overall fiscal deficit close to the level in the approved FY2023/24 budget, will be achieved through a combination of revenue and spending measures.
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“These include increases in non-tax revenues (fees) by about 0.2 percent of GDP (half-year impact), adopted at the end of December 2023, and expenditure saving of about 0.2 percent of GDP (half-year impact) via a careful rationalization and execution of the investment portfolio,” read the report in part.
In December, certain government services experienced a rise in fees, including the issuance of replacement IDs, which will now be available to Kenyan citizens at a cost of Ksh1,000.
Conversely, Kipchumba Murkomen, the Cabinet Secretary for Transport, raised the fees for certain sections of the Nairobi Expressway from Ksh360 to Ksh500.
Specifically, Murkomen clarified that the adjustments were made due to fluctuations in the exchange rate, with the Shilling consistently depreciating against the Dollar.
Notably, the weakening Shilling has also contributed to the ballooning debt.
Given that loans are offered in dollars, a USD 100 million loan offered in 2023 (when the exchange rate was Ksh123) cannot be of the same value in Ksh as a similar loan extended to Kenya in 2024 (when the exchange rate is average at Ksh158).
Budget Deficits & Interest Rates Among Factors Making Govt Services Expensive – Report
