JOHANNESBURG - The implementation risks associated with some of the revenue and spending measures in Kenya's 2018/19 budget tabled on June 14 will challenge the achievement of fiscal consolidation, ratings agency Moody's said on Tuesday.
Moody's also said it was unlikely that President Uhuru Kenyatta's government would reverse the erosion in fiscal metrics that had led the agency to downgrade Kenya's rating to B2 earlier in the year.
In its budget last week, Kenya forecast a reduction in the fiscal deficit to 5.7 percent of gross domestic product from an estimated 7.2 percent in 2017/2018.
"As recent history suggests, maintaining spending such as the wage bill and administrative costs flat in real terms is ambitious for the government," Moody's said on Tuesday.
"As a result, we project a fiscal deficit of around 7 percent of GDP based on more modest improvements in tax collection."
Development spending would bear the brunt of any further cuts to limit the size of the fiscal deficit, Moody's said.
While the fiscal authority’s commitment to remove the cap on Kenyan banks’ lending rates would unlock financing to the productive private sector and boost growth, it would also present risks for the sovereign as Kenyan banks provided substantial funding to the government, it added.