Deficit stalks Kenya’s first trillion budget

Finance minister Uhuru Kenyatta will on Thursday afternoon unveil a trillion shilling budget containing a package of measures designed to secure growth.

The Sh996 billion budget, is Sh110 billion larger than last year’s or nearly half of Kenya’s GDP affirming the government’s position as a key player in the two trillion economy.

But with the tax revenues trailing the target of Sh580 billion in the current financial year and growth expected to remain subdued during coming fiscal period, Mr Kenyatta’s mega budget could come with a large deficit and an equally large provision for borrowing besides increasing the country’s dependence on donor financing.

According to Treasury estimates, Sh630 billion will be collected in taxes in the next financial year and Sh143 billion from development partners.

That would leave a financing gap of nearly Sh223 billion to be bridged through a domestic borrowing in the absence of asset sales coming through or a sovereign bond being floated.

Treasury has indicated that it plans to keep domestic borrowing at the current level of Sh109 billion leaving analysts groping in the dark as to how he will raise additional revenue for the expanded budget.

Steve Okello, head of tax consultancy firm PricewaterhouseCoopers (PwC) said the economic environment raises the possibility of new taxes, such as capital gains tax, being introduced as well as upward adjustments on sin taxes (levies on beer and cigarettes) that were left untouched last year.

The estimates also show a significant rise in provision for Appropriation in Aid – signalling that Kenyans will be asked to pay more for public services.

Other analysts said Kenyatta could also use the push for a harmonized tax structure for the East African Community member states to increase the Value Added Tax (VAT) from 16 per cent to 18 per cent level charged by Uganda and Tanzania.

The move, which amounts to increasing the tax burden on consumption, could however prove counterproductive as it bears the risk of slowing down consumer demand and ultimately pulling back the rate of economic growth.

Estimates tabled in Parliament by Finance Assistant minister Oburu Oginga on Wednesday show that Treasury, Energy, Education, Water and Public Health will be the key beneficiaries of increased public spending that is comprised of Sh675 in recurrent spending and Sh321 billion in development expenditure -- a 26 per cent jump from last year’s budget.

The Ministry of Education has maintained its position as the biggest item on government’s expenditure plan that will also receive a significant fraction of the additional funds to pay higher for teachers and university lecturers.

About Sh7 billion will go to teachers’ salary for a total pay bill of Sh65 billion up from Sh57 billion pushing the Ministry of Education’s share of the budget to Sh150 billion.

Treasury has more than doubled its budget to Sh53 billion to provide funds to offset pending bills owed to Telkom Kenya by various government bodies before it was privatised in 2007.