Treasury secretary raises the alarm over rising wage bill
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Treasury secretary Henry Rotich told Parliament that local challenges coupled with weak growth in advanced economies could impact negatively on Kenya’s exports and tourism, posing serious challenges to budget execution.
Treasury said short-term flows that Kenya has continued to rely on to finance the deficit could become volatile, triggering a disorderly adjustment.
Mr Rotich said the exchequer return of end of August shows that the ordinary revenue amounted to Sh123.5 billion and was below target by Sh13.8 billion in the two months of the year.
Rising wage pressures and heavy financial obligations arising from the new Constitution are limiting the government’s ability to finance development, the Treasury warned Wednesday.
Treasury secretary Henry Rotich told Parliament that local challenges coupled with weak growth in advanced economies could impact negatively on Kenya’s exports and tourism, posing serious challenges to budget execution.
Mr Rotich said the cumulative revenue collection including Appropriation-In-Aid (AiA) for the 2012/13 financial year amounted to Sh847.2 billion compared to the target in the revised budget estimates of Sh915.3 billion, leaving a big gap in the development budget.
Ordinary revenue totalled Sh779.4 billion against a target of Sh823.7 billion, reflecting an underperformance of Sh44.2 billion.
The poor revenue performance was attributed to unfavourable macroeconomic conditions in the second half of 2012 combined with administrative challenges in VAT collections.
In the Budget Review and Outlook Paper (BROP) 2013 presented to parliament’s Budget Committee, Mr Rotich said the high current account deficit of 11 per cent of the Gross Domestic Product (GDP) will continue to pose a risk to economic stability in the country.
“Kenya’s large and persistent current account deficit of over 10 per cent of GDP in the last three years raises major concerns for sustained economic growth,” he said.
The Treasury said short-term flows that Kenya has continued to rely on to finance the deficit could become volatile, triggering a disorderly adjustment.
“The current account deficit is bound to stay high, driven by high capital imports and high investment demand. The weak and subdued demand for Kenya’s exports in its traditional European markets will remain a dragon in Kenya’s current account, as the Eurozone battles recession,” the minister said.
The report says overall balance of payment surplus narrowed to $625 million in the year to July 2013 from $873 million in the year to July 2012, reflecting less than proportionate improvement of capital and financial account (3.1 per cent) compared to the deterioration in the current account deficit (10.0 per cent).
Mr Rotich observed that the current account deficit widened to $4,571 million in the year to July 2013 from $4,168 million in the year to July 2012.
He attributed the decline of the current account balance to faster growth in the merchandise import bill, importation of machinery and transport equipment that rose to $4,913 million in July 2013 from $4,196 million in July 2012.
Total expenditure and net lending amounted to Sh1,117.0 billion in the same period against a target of Sh1,303.2 billion representing under spending of Sh186.2 billion or 17.9 per cent deviation from the revised budget.
The shortfall was attributed to low absorption in recurrent and development expenditures by line ministries partly attributed to shortfalls in ordinary revenues.
Mr Rotich said the overall fiscal balance on commitment basis amounted to Sh248.9 billion against a revised budget target of Sh252.1 billion while the overall fiscal deficit, including grants and after adjustment to cash basis totalled Sh232.5 billion compared to a target deficit of Sh299.9 billion.
“The deficit was financed through external financing (including commercial financing) equivalent to Sh62.7 billion against a target of Sh144.1 billion and net domestic borrowing of Sh169.8 billion compared to revised programme target of Sh165 billion,” the Treasury document states.
Mr Rotich said the implications of the 2012/13 performance affected the base for revenue expenditure for the 2013/14 budget thus the need for adjustment in the fiscal aggregates for the current budget and the medium term.
He said the baseline ceilings for spending ministries and agencies will be adjusted owing to the slow execution of the current budget before being firmed up in the next Budget Policy Statement in January and February.
Mr Rotich said the exchequer return of end of August shows that the ordinary revenue amounted to Sh123.5 billion and was below target by Sh13.8 billion in the two months of the year.
“The implementation of the VAT Act is expected to reverse the trend as well as other administrative measures being taken,” he said. The Treasury said priority will be given to social sectors such as Education and Health which will receive significant share of resources in the next five years.
Energy, Infrastructure and ICT sectors will get the second largest share because they are the drivers of the economy. Mr Rotich projected that the real GDP growth for 2014/15 financial year is expected to increase by 6.3 per cent and expects that Sh1,192.8 billion will be raised in the said period.
