The International Monetary Fund wants Kenya to slash its swelling public expenditure and increase its revenue base to cushion it from expected harsh economic conditions this year.

The financial institution argues that the government should also continue focusing on consolidation of medium-term plans and effective monetary policy to curb domestic demand.

At a recent meeting convened by the executive directors to assess the country’s economic status, the institution urged the government to adopt a more ambitious medium-term target by reducing non-priority expenditure and front-loading adjustment.

Increased public expenditure, as a result of increased demand for goods and services, has seen the country’s public debt rise sharply from 48 per cent to 54.2 per cent, more than five percentage points above the IMF’s recommended ceiling of 45 per cent.

There are fears that expenditure might increase further, this year, as the country continues to implement the new constitution ahead of the general elections.

“Directors underscored the importance of protecting key outlays, in particular emergency food relief for the population, targeted transfers to the poor, implementation of the new constitution, and high-priority investments,” the IMF statement added.

Prompt implementation of the new legislation on public finance management and the draft VAT law will be important to ensure sound expenditure management in the context of fiscal decentralisation and to strengthen revenue mobilization, the officials added.

A new value-added tax (VAT) Bill is almost ready to be sent to parliament, and a Public Finance Management (PFM) Bill has been submitted to the Commission for the Implementation of the Constitution.

The VAT Bill is expected to improve the administration and collection of VAT to boost revenues. The government argues that the old law that excludes taxation on certain goods, organisations, people and property, as well as zero-rating, has been a stumbling block in administering the tax.

It is estimated that the government loses more than Sh100 billion through these policies annually.