International financial institutions have raised the red flag on what they say is runaway government spending amid a financial crunch.
World Bank Country Director for Kenya Ms Diaritou Gaye singled out government’s huge spending on infrastructure, warning that Kenya’s current expansionary fiscal plan “is not sustainable” and presents a risk to the country’s future growth.
“Although heavy infrastructural spending is a boon for Kenya’s production space and future growth, the short to medium term macro-fiscal framework is vulnerable to macro-economic shock as fiscal space has been wiped out,” Ms Gaye said Thursday in Nairobi when the World Bank launched an economic update on Kenya.
The World Bank report, however, maintains that Kenya’s economic performance remains solid and is expected to grow at 5.4 per cent in 2015, recording an improvement over the 2014 growth rate of 5.3 per cent. The growth rate in 2016 is projected to be 5.7 per cent.
The study further assesses the status of devolved governments, warning that while the fiscal deficit of 8.7 per cent of GDP has raised concerns at the national level, it is the quality and transparency of spending that is paramount in the counties.
Separately, the IMF Kenya representative Armando Morales echoed Ms Gaye’s words, saying the government should prioritise on critical spending and cut non-essential expenditure.
“It’s ideal to identify priority sectors and provide resources to those sectors. Priority expenditure should be on projects with larger impact on the economy,” Mr Morales told the Nation on the sidelines of the World Bank event.
To reduce pressures on the government, World Bank senior economist John Randa said the National Treasury should stagger some of its planned major development projects.
“To reduce the fiscal budget for 2015, the government can postpone some projects in the national budget for a later date. We (Kenyans) cannot have our cake and eat it,” said Mr Randa.
The Bretton Woods institutions issued the warnings as National Treasury Cabinet Secretary Henry Rotich and Principal Secretary Kamau Thugge sought to calm fears on the state of government coffers before the National Assembly.
In the last decade, Kenya has borrowed heavily to fund massive infrastructure projects in order to transform itself into a middle-income economy by 2030.
According to the third edition of the annual Deloitte African Construction Trends Report released last year, Kenya contributed the bulk of large capital infrastructure projects implemented in East Africa last year, followed by Uganda, Ethiopia, Tanzania and Rwanda, respectively.
By BRIAN NGUGI