By Duncan Miriri
NAIROBI (Reuters) – Kenya plans to cut its debt to below 55% of its GDP in the next two years, Finance Minister John Mbadi said on Wednesday, as the government awaits the outcome of its request for a new International Monetary Fund lending programme.
Financial markets reacted negatively last week when it was announced that Kenya and the IMF had abandoned the final review of the East African nation’s current $3.6 billion support programme.
Mbadi said the government now plans to reduce its debt-to-GDP ratio to 52.8% by the 2027/28 financial year from just over 58% currently. That would bring it under the 55% level considered sustainable by the IMF and World Bank’s debt carrying-capacity assessment.
“We are in times that are not very easy and we must show commitment to solving this problem,” Mbadi told a meeting to discuss the government’s debt management strategy.
“The strategy to me is very simple. Number one is to consistently demonstrate that you are reducing your budget deficit.”
To attain that, Kenya will tap external sources for a quarter of the gross borrowing needs in the 2025-28 period, he added, while three quarters will come from domestic sources.
Kenya’s now-shelved IMF programme began in April 2021, but its implementation was hampered by anti-tax hike protests last year which forced President William Ruto’s government to abandon its plan to reduce this year’s fiscal deficit to 3.5%.
Spending pressures have however since forced a further expansion of the deficit to 4.9% of GDP, Chris Kiptoo, the principle secretary at the ministry, told the same meeting.
Mbadi, appointed after the protests as Ruto sought to stabilise his government, termed the move to target a budget deficit of 3.5% as “crazy imagination”, suggesting the goal was unattainable, and added it had almost brought severe unrest.
He said the government had to reduce the budget deficit steadily while also providing services to Kenyans.
The government still plans to move towards a smaller budget deficit gradually, he said, aiming for a maximum of 3% of GDP in 2028.
The government is also stepping up efforts to cut corruption, the minister said.
A 50% reduction in the amount estimated to be stolen every year could remove the need to borrow from the IMF and the World Bank, as well as reduce reliance on U.S. aid, while the complete elimination of stealing could erase the budget deficit, he said.
(Reporting by Duncan Miriri, graphic by Marc Jones in London; Editing by William Maclean)
