KEY STRATEGIES THAT THE GOVERNMENT OF KENYA IS WORKING ON FOR ENHANCED SOCIO-ECONOMIC DEVELOPMENT PRESENTED AT THE BONDS, LOANS AND SUKUK EAST AFRICA BY FELISTER S. KIVISI, NATIONAL TREASURY AND PLANNING, KENYA ON 2ND OCTOBER 2018 AT VILLA ROSA-KEMPINSKI, NAIROBI

PRESENTATION OUTLINE Recent Economic Developments Policy Priority Going Forward- “The Big Four” Plan Macroeconomic and Fiscal Projections Resource Envelope Debt Sustainability Analysis Potential Risks to Macroeconomic Outlook

Recent Economic Developments Background of a global economic recovery: 3.7% in 2017 and projected at 3.9% in 2018 and 2019. Global growth: Supported by notable improvements in investment, trade, and industrial production, coupled with strengthening business and consumer confidence and stabilizing commodity prices. Advanced economies: Growth expected to remain at 2.4% in 2018 similar to 2017 before easing to 2.2% in 2019 reflecting stronger activity and external demand in the United States. Emerging economies: Activities expected to increase further from 4.7% in 2017 to 4.9% in 2018 and 5.1% in 2019 reflecting improved prospects for commodity exporters after three years of very weak economic activity. SSA: Recovery is set to continue, supported by the rise in commodity prices. Growth is expected to increase from 2.8% in 2017 to 3.4% in 2018,rising further to 3.8% in 2019.

Growth of the Kenyan economy has remained robust in the past 5 years supported by appropriate economic and financial policies. Kenya, the economic hub of East Africa, benefits from a growing, resilient and diverse economy. From 2013 to 2017, growth averaged 5.6% per year vis a via 4.7% in the period 2008-2012. Growth is projected at 6.0% in 2018. So far growth in Q1 2018 was attributed to improved weather conditions and regaining of business and consumer confidence following political stability in the country.

Policy Priorities Going Forward: “The Big Four” Plan The Big Four Plan: These are Policy Priorities Going Forward to Unlock Growth Constraints for shared prosperity. Builds on achievements realized under the Economic Transformation Agenda implemented over the last 5 years. This Big Four Plan aims to transform lives by creating jobs, improving living and health conditions and ensure food and nutrition security for all Kenyans. Over the next five years, the government of Kenya aims to focus on the “Big Four” to further strengthen the economy, progress industrialization and create jobs, thereby contributing towards the realization of the Vision 2030.

THE BIG FOUR PILLARS MANUFACTURING -15% of GDP from the manufacturing sector; Growing the manufacturing sector’s share of GDP to 15% by 2022, thereby furthering growth, creating jobs and reducing poverty. 100% FOOD AND NUTRITION SECURITY-Focusing on food security and nutrition to all Kenyans by 2022 by expanding food supply, reducing prices and supporting value addition. 100%Universal Health Coverage (UHC)-Providing universal health coverage to all Kenyans. AFFORDABLE HOUSING- 500,000 affordable new houses for Kenyan families- Providing at least 500,000 affordable new homes by 2022.

Macroeconomic Projections Implementation of “The Big Four” Plan should see the economy growth at a much faster rate. Real GDP growth is projected to increase from 4.9% in 2017 to 6.0% in 2018 and around 7.0 percent over the medium term bolstered by: Expected stable weather conditions: This will boost agriculture. Completion of key infrastructure projects (such as railway, roads, low cost housing and energy):This will improve competitiveness and boost investments. Inflation should remain within the government target range, and interest rates and exchange rate are projected to remain broadly stable.

Further structural reforms are targeted at improving competitiveness of the private sector and promoting overall productivity in the economy. Growth in exports expected to benefit from the relatively strong growth in the sub region.

Fiscal Projections Given the outcome for FY 2017/18, projections for FY 2018/19 and the Medium Term have been reviewed. The revised projections take into account a lower projection base, the revised macro indicators and the revenue policy measures introduced in the finance bill and the tax law amendment. Cumulative Revenues are projected at Ksh 1,826.9 billion or 18.2% of GDP with ordinary revenues at Ksh 1,647.0 billion or 16.4% of GDP and Ministerial A-I-A at Ksh 179.93 billion or 1.8% of GDP. Expenditures are projected at Ksh 2,468.4 billion or 24.6% of GDP. Recurrent expenditures are projected at Ksh 1,518.7 billion (15.1% of GDP) while development expenditures are projected at Ksh 568.2 billion (5.7% of GDP).

The deficit, incl. grants, is therefore projected at Ksh 595 The deficit, incl.grants, is therefore projected at Ksh 595.5 billion (equivalent to 5.9% of GDP). Excluding SGR, the deficit amounts to Ksh 508.9 billion or 5.1% of GDP. This fiscal deficit will be financed by net external financing of Ksh 272.0 billion (2.7% of GDP), Ksh 319.6 billion (3.2% of GDP) from net domestic borrowing, and other net domestic receipts of Ksh 3.9 billion.

Revenue mobilization measures Revenue collection under the Revenue Enhancement Program (REP) for the period January to June 2018 was Ksh 51.4 billion against the total REI target of Ksh 73.7 billion, a performance of 70%. KRA is implementing initiatives to ensure that enhanced performance of revenue collection. Continued fiscal consolidation.

Resource Envelope Resource Envelope remains limited against all the priorities by the Government. The focus is, therefore, on the priorities: “The Big Four” Plan. Budgets have been aligned to the needs of The Big Four” strategic areas. Funding the non discretionary expenditures (a must) leaves little room/resources and budgets have had to be PRIORITIZED and avoid non core expenditures.

Debt Sustainability Analysis (DSA) The public debt sustainability indicators illustrates that Kenya faces a moderate risk of debt distress. Kenya among sub Saharan African Countries with least debt accumulation as a share of GDP. Kenya is rated a strong policy performer under the World Bank’s Country Policy and Institutional Assessment (CPIA) rating-(Debt to GDP threshold 74%). Kenya’s external debt indicators are within the sustainability thresholds with debt to GDP ranging between 39.4 percent in 2012 to 49.0 percent in 2017 compared to the 74% threshold. Government has made adequate budgetary provisions for debt service and has honoured all debt obligations as they fall due.

Capital Markets? Remains a viable option for resource mobilization so long as the market conditions are right and the pricing acceptable to Kenya. Liability management may be undertaken in the process to address the upcoming maturities. Raising new money to support the government initiatives to further strengthen the economy, progress industrialization and create jobs, thereby contributing towards the realization of the Vision 2030.

DEBT MANAGEMENT Capacity building of the Debt Management Directorate Training and staffing due to natural attrition and new opportunities for trained staffs Focus on existing debt –Liability management Continue monitoring the sustainability of current debt and going forward

Potential Risks to the Macroeconomic Outlook Continued uncertainty in the global markets due to US economic and trade policies (Monetary policy normalization) and Geopolitical tensions. Uneven and sluggish growth in advanced and emerging market economies as well as impact of low commodity prices on our exports. Internally, public expenditure pressures, particularly wage related recurrent expenditures. Weather related shocks that could impact on agricultural output, energy generation and higher inflation. However, we continue to monitor these risks and will take appropriate measures to safeguard macroeconomic stability.

THANK YOU-THE END