Kenya faces fiscal challenges in 2023

Significance

By prioritising debt repayments over salary payments (and refraining from short-term borrowing to pay salaries), the government is signalling its commitment to servicing debts while taking fiscal consolidation seriously. However, this policy is not without political consequences.

Impacts

• The government is keen to accelerate privatisations, but some state-owned companies will require restructuring before they can be divested.
• A March interest rate hike may be the central bank’s last as the inflation outlook has improved and the real interest rate is now positive.
• Incoming external financing in the second quarter of 2023 will ease some foreign reserve pressures.