Kenya is positioned to significantly reduce its public debt-to-GDP ratio and create jobs by prioritizing fiscal, governance, and structural reforms, according to the latest Kenya Public Finance Review (PFR) titled "Beyond the Budget: Fiscal Policy for Growth and Jobs." The report suggests that implementing these reforms could lower Kenya’s debt-to-GDP level to approximately 44 percent by 2035.
The review highlights the need for a comprehensive fiscal consolidation strategy amid Kenya's challenging fiscal situation characterized by high public debt, increasing interest payments, and an economic slowdown. "Kenya is at high risk of debt distress and decisive reforms are urgently needed to keep debt sustainable while promoting growth and jobs," stated Qimiao Fan, World Bank Division Director for Kenya, Rwanda, Somalia, and Uganda.
Revenue policy improvements recommended in the report include broadening the tax base by rationalizing tax exemptions, encouraging formalization, reforming property taxes, and enhancing tax compliance. These measures could generate additional revenue equivalent to about 4 percent of GDP.
On expenditure policy, the report advises enhancing efficiency in public spending through better public financial management. This includes focusing on procurement practices, public-private partnerships, state-owned enterprises (SOE), and reducing inefficient subsidies. Reforming the wage bill while increasing spending on social protection, education, and health is also emphasized. These changes could result in savings of around 1.7 percent of GDP.
To improve service delivery further resources are necessary: social protection requires an additional 0.3 percent of GDP per year; health needs another 3 percent; education demands at least an additional 1 percent annually.
Governance reforms proposed involve strengthening conflict-of-interest frameworks, tightening money laundering controls, improving licensing regimes, and digitizing traffic fines. Structural reforms include implementing the Africa Continental Free Trade Agreement (AfCFTA), competition policies alongside SOE divestiture, interventions for urban competitiveness, and reducing living costs.
"Pathways of continued fiscal slippages or severe austerity measures are economically and socially costly," said Marek Hanusch, World Bank Lead Economist and Program Leader. "There is another way that is more sustainable based on packages of reforms."
The World Bank PFR provides a detailed assessment of Kenya's public finances with recommendations aimed at optimizing resource use for development goals. It examines fiscal strategies including revenue generation methods, spending patterns, and debt management approaches.