Kenya to cap fiscal deficit at 4.5% in FY 2025/26

NAIROBI (Reuters) -Kenya will cap its fiscal deficit at 4.5% of GDP in 2025/26, down from 5.1% the previous year, and revise its initial budget of 4.3 trillion Kenyan shillings ($33 billion) substantially, its cabinet said on Tuesday.

Last year mass protests forced President William Ruto to withdraw $2.7 billion in proposed tax hikes and abandon plans to reduce this year's fiscal deficit to 3.5%, amid the biggest crisis of his two-year presidency.

"These adjustments are part of broader austerity measures designed to strengthen fiscal discipline, reduce public debt vulnerabilities, and create the fiscal space necessary to deliver essential public goods and services," a cabinet statement said.

The cabinet approved the Finance Bill 2025, saying it focuses on closing loopholes and enhancing efficiency.

Financial markets reacted negatively when it was announced in March that Kenya and the International Monetary Fund had abandoned the final review of the East African nation's current $3.6 billion support programme.

Last week the IMF said Kenya's cash shortage required a new spending strategy, as the lender confirmed the government had requested a new program.

($1 = 129.0000 Kenyan shillings)

(Reporting by Humphrey Malalo; Writing by Hereward Holland, Editing by William Maclean)

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