'We cannot balance our budget,' Treasury CS Mbadi admits

The government has abandoned the 9th review of the International Monetary Fund (IMF) program, which is set to lapse on April 1, 2025.

According to National Treasury Cabinet Secretary John Mbadi, the time frame before the program comes to and end is not sufficient to complete the review.

CS Mbadi says the government has opted for a fresh program with the IMF. However, according to economic analysts, the conclusion of the IMF program now means that in the next financial year, the government will be forced to rely on the domestic debt to sustain itself.

This comes barely a day after the Central Bank of Kenya (CBK) Governor Kamau Thugge called on the National Treasury to address the government's credit appetite to unlock credit to the private sector at lower rates, which CS Mbadi terms a toll order.

According to the Treasury honcho, external financing is becoming limited as countries remain alert to the policy shifts in the U.S. An issue that could further worsen access to credit for the private sector.

Thugge said: “Unless we can contain the fiscal deficits, not just contain but continue with the fiscal consolidation that the Treasury has been talking about, we will not be able to achieve the kind of low, stable interest rates that are required to really empower and drive economic growth.

Mbadi however stated: “We must live with the realities…external financing is becoming scarce, it is not an option. You know if we have options of getting that money, we can engage in a debate. We don’t have that option. Number one, you can see what the U.S has said, and that is going to impact not just the U.S loans, meaning the U.S support…it is going to impact even any support that we have been getting from Europe.”

Treasury further says it is impossible to balance the country's budget under the current fiscal circumstances.

According to CS Mbadi, in the medium term debt strategy, Treasury intends to reduce debt costs and risks, by sourcing 25 percent of gross borrowing from external sources and 75 percent from domestic sources over the medium term.

“We cannot stop borrowing, it is a lie if we start saying…we cannot balance our budget now…if we balance our budget now, we will not offer services to the people and no one will accept to pay taxes if they are not receiving services.”

Treasury Principal Secretary Chris Kiptoo, on his part, said: “Our aspiration is a balanced budget but we know it's not possible to have a balanced budget, but we have to reduce the deficit that's why we have moved from 8.1 percent of GDP in 2021 all the way to 4.9 in this financial year and we are looking at upto 2.7 in the medium term.”

In an effort to defend the country's debt level, Treasury notes that the country's GDP level, although higher than recommended, remains sustainable, blaming the negative rating on concentrated maturities.