(Bloomberg) -- Kenya projected a budget deficit for the coming fiscal year at a 15-year low, boosted by spending cuts and aggressive revenue collection.

The National Treasury forecast a shortfall of 514.7 billion shillings ($3.82 billion), equivalent to 2.9% of gross domestic product, according to estimates presented to lawmakers on Tuesday. That’s lower than earlier projections of 3.9% for the year through June 2025, and 3.3% for the following two periods to mid-2027.

“The fiscal policy endeavors to strike an appropriate balance — addressing rising debt and social discontent — while recognizing the difficult trade-offs exerted by Kenya’s limited fiscal space that has been exacerbated by continued financing constraints,” the Treasury said.

If the target is achieved, it’ll be the narrowest budget gap since the 2% registered in 2008, according to International Monetary Fund data.

The budget’s tone portrays a belt-tightening stance that’s in line with conditions of Kenya’s ongoing $4.43 billion IMF program, according to Churchill Ogutu, an economist at IC Asset Managers.

“That said, I’m not convinced of the FY25 revenue targets if the out-turn in the current budget year is anything to go by,” he said by phone.

Nine-month revenue was below target by about $2 billion, Treasury said in its estimate budget.

Tax Measures

It targets raising revenue to 20.2% of GDP in the medium-term by introducing new taxes, adding measures such as immigration fees, and eliminating unproductive incentives.

Ordinary revenue is seen growing by almost a fifth to 2.91 trillion shillings from a revised 2.45 trillion shillings in the current period.

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Expenditure is estimated to rise marginally to 3.92 trillion shillings, including 2.78 trillion shillings of recurrent expenses and development spending of 687.9 billion shillings.

The Treasury said it lowered spending estimates by 273.3 billion shillings from an earlier projection in the so-called budget policy statement by eliminating non-priority spending.

Other Highlights:

  • In the coming year, the Treasury plans to finance its shortfall through net external borrowing of 256.8 billion shillings and net domestic loans of 257.9 billion shillings
  • Debt repayments will rise to 1.85 trillion shillings, including foreign interest payments of 259.9 billion shillings and 330.7 billion shillings for maturing external debt
    • That includes the first amortization of eurobond debt due 2027, which is to be settled in three annual installments of $300 million beginning May 2025
  • Kenya sees present value debt to GDP only falling below the 55% benchmark in 2029, from an estimated 67.2% this year and 64% in 2025
  • The Treasury has lined up 25 state entities for privatization. Another 41 will be merged to deal with duplication, 42 will be restructured and 25 agencies will be wound up.

(Updates with analyst comment from fifth paragraph)

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