Kenya Plans Fiscal Deficit Cut as IMF Seeks New Program

Kenya's government has announced plans to cap its fiscal deficit at 4.5% of GDP for the 2025/26 financial year, down from 5.1%, as part of a revised fiscal strategy aimed at restoring investor confidence and addressing mounting debt concerns. The initial budget of 4.3 trillion Kenyan shillings (about $33 billion) will undergo significant revisions, with a new Finance Bill focused on closing revenue loopholes and improving spending efficiency. This move comes after mass protests last year forced the withdrawal of proposed tax hikes and a more aggressive deficit reduction, pushing the administration to prioritize austerity over new taxes. The fiscal shift is being closely monitored by the International Monetary Fund (IMF), whose previous $3.6 billion support program with Kenya stalled in March, prompting the government to request a new bailout. The IMF has advised Kenya to adopt a new spending framework in light of its deepening cash constraints, underscoring the delicate balance between domestic pressures and international obligations. Financial markets have reacted negatively to recent fiscal uncertainties, highlighting the urgency of Kenya's efforts to strengthen fiscal discipline and reduce public debt vulnerabilities.