IMF calls for bud­get cuts in medium term

The Star (Kenya) - - News Business -

The IMF says Kenya, a broad-based econ­omy which is still growing at a ro­bust six per cent, was jus­ti­fied in ex­pand­ing its fis­cal deficit to in­vest in roads, power plants and other in­fra­struc­ture.

“How­ever, it is im­por­tant to make sure go­ing for­ward, the medium-term con­sol­i­da­tion path that the government has in mind is ad­hered to,” the In­ter­na­tional Mon­e­tary Fund’s di­rec­tor of African Depart­ment Abebe Se­lassie (pic­tured) said yes­ter­day.

The coun­try plans to partly plug a gap­ing bud­get deficit this fis­cal year from in­ter­na­tional cap­i­tal mar­kets.

Se­lassie said African na­tions need to bal­ance com­mer­cial debt, like Eurobonds, with other cheaper forms of financing from de­vel­op­ment institutions. Sev­eral na­tions have made de­but Eurobond is­sues in re­cent years but the pace has slack­ened off.

Eurobonds “can­not be the main source of financing for coun­tries. It can com­ple­ment other forms of financing and im­por­tantly, you want to min­imise the deficit financing.”

African ex­porters of oil and com­modi­ties, he added, should re­move sub­si­dies and boost taxes to weather their slow­est growth in more than two decades.

The Wash­ing­ton-based fund cut its 2016 growth fore­cast for Sub-Sa­ha­ran Africa to 1.4 from three per cent in May, as economies from Nige­ria to Zam­bia reel from the drop in com­mod­ity prices.

Se­lassie said growth could start to re­cover next year to three per cent, but only if the bat­tered economies carry out fis­cal re­forms.

“Should they fail to do that, vul­ner­a­bil­i­ties will heighten and the cri­sis of the weak eco­nomic per­for­mance we have seen so far will get even more dif­fi­cult,” he told Reuters.

African eco­nomic growth was more than five per cent in the decade lead­ing up to the com­mod­ity price drop, but it is now be­ing dragged lower by 23 re­source-depen­dent na­tions like Nige­ria, South Africa and An­gola.

While aver­age growth was three per cent last year, coun­tries that are more di­ver­si­fied like Rwanda and Sene­gal will con­tinue to grow at more than five per cent.

Nige­ria, which is in its first re­ces­sion for more than 20 years, has been seek­ing to widen its tax base, to off­set lower rev­enues caused by the slump in oil prices.

Se­lassie said Nige­ria’s low debt is a source of strength, adding of­fi­cials need to of­fer more cer­tainty through a “co­her­ent and con­sis­tent pol­icy pack­age”. Zam­bia, which has been hit by lower prices of cop­per, could save some money by elim­i­nat­ing fuel sub­si­dies, he said. “Fuel sub­si­dies take out huge amounts of government re­sources and gen­er­ally also they tend to be very re­gres­sive.”

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