The Dynamics of Fiscal Deficits in Kenya : A Review of Reforms, Trends, and Determinants

Abstract

This article provided an exploratory review of the trends, policy reforms, and determinants of fiscal deficits in Kenya during the period 1980-2017. The country undertook various fiscal policy reforms intended to improve revenue mobilization and expenditure efficiency. The reforms started with the structural adjustment program in 1980 and included the introduction of the semi-autonomous revenue authority and an extensive public financial management reform agenda. While the country achieved great results with these reforms, the fiscal deficit has continued to widen over the past ten years. Consequently, the sustained increase in fiscal deficits has led to faster accumulation of public debt. A review of the literature suggests that fiscal deficits are linked to the business cycle, the structure of the economy, donor aid and grants, interest rates, the current account, and trade openness. The authorities in Kenya should put in place strategies to maintain sustainable deficits and debt in line with the East African Monetary Union convergence criteria.