Budget Deficits & Interest Rates Among Factors Making Govt Services Expensive – Report


A report by the International Monetary Fund (IMF) has revealed two main reasons why various State agencies and institutions increased charges for various government services.

In its country report, the IMF noted that the move was effected owing to budget deficits and an increase in interest rates for various loans taken out by the Kenyan government.

These two factors, as explained in the document would have widened the fiscal deficit for President William Ruto’s first Ksh3 trillion budget, hence the need to restrategise.

Owing to the increase in the charges, it is expected that the government will now be able to allocate funds for various programmes in the second supplementary budget set to be tabled in Parliament in March.

Members of Parliament attending President William Ruto’s State of Nation address on November 9, 2023.

Photo

Musalia Mudavadi

Additionally, the recent slowdown in undertaking development projects was also influenced by the 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.

“These include increases in non-tax revenues (fees and charges) by about 0.2 per cent of GDP (half-year impact), adopted at the end December 2023, and expenditure saving of about 0.2 per cent of GDP (half-year impact) via a careful rationalization and execution of the investment portfolio,” read the report in part.

Some of the government services whose costs were increased in December include the replacement of IDs which will now be offered to Kenyans at Ksh1,000.

On the other hand, Transport Cabinet Secretary Kipchumba Murkomen also increased Nairobi Expressway charges with some sections having the fees increased from Ksh360 to Ksh500.

Particularly, Murkomen explained that the changes were effected owing to changes in the exchange rate where the Shilling has continued to weaken 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). 

A photo of one hundred shilling notes

Photo

Xpress Money





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