APRM • SECOND COUNTRY REVIEW REPORT OF THE REPUBLIC OF KENYA 2.3.2 Fiscal Policy 45. The government‘s fiscal framework is targeted at supporting rapid and inclusive growth, ensuring sustainable debt position, and supporting devolution for effective delivery of services. In 2015/16 the fiscal plan was aligned to the second Medium Term Plan (MTP II) and strategic interventions of National interest. The framework entails a continued prudent expenditure management to curb fiscal risks, gradually lower the fiscal deficit and contain growth of recurrent expenditure in favour of productive capital spending. The 2015/16 budget underlined resource allocation towards development programmes in infrastructure, agriculture, security, health, education, social protection and youth empowerment - all aimed at enhancing sustainable and equitable growth and job creation. 46. Public debt has increased but remains within manageable levels. It increased from 36% of GDP in 2008 to 48.6% by the end of 2013. The debt stock of external debt experienced a marginal increase. In contrast, domestic debt stock experienced a faster growth, rising from 16% to 22.3% of GDP over the same period. This is partly attributable to the impact of expansionary fiscal policy coupled with accommodating monetary policy, which resulted in a reduction of interest rates (yield on treasury bills) from 8.6% in 2008 to 2.3% in 2010. This confluence of macroeconomic policies prompted a lending boom. As a result, the credit to the private sector grew rapidly from 19.8% of GDP in 2009 to 30.7% in 2010, the major beneficiary of the credit being the mining sector. 47. The government has succeeded in suppressing fiscal deficit. Total revenue-to GDP ratio over the 2006/07-2012/13 remained strong, averaging 25.9% of GDP. This kept the fiscal deficit around 4% of GDP. At the same time, public spending, including grants, was kept at an average of 35.67% of GDP. The financing of the fiscal deficit by both domestic and foreign borrowing did not affect debt sustainability. 48. Although fiscal deficits have been high, inflation has largely remained low since it mainly depends on demand. This is particularly the case for food and oil prices, which have remained favourable over the last two years. Despite recent discoveries, Kenya is not yet producing oil and has mainly benefited from the falling oil prices, which helped suppress inflation. 49. Total revenue-to-GDP ratio is expected to average 21% in the next two years. In contrast, total expenditure and net lending will remain above 30%, and the average overall budget deficit will remain above 7% of GDP. 50. Total stock of debt by the end of 2014/15 stood at Ksh 2,601.4 billion, of which external debt stock was 54.7%. Debt servicing charges net of repayments from lending were expected to be at Ksh 399.0 billion. Over the period under review, Ksh 259.8 billion were transferred to county Government. The total budgeted expenditure for county government was estimated at Ksh 362.1 billion against estimated revenue of KHs. 343.7 billion. | 67 |