- Revenue collection underperformed by Sh40 billion in the first two months of the financial year, July and August, amid the coronavirus-related disruptions.
- The type of credit Kenya has sought from the IMF is a quick-disbursing facility where money flows straight into the budget to top up the public purse and is used at the discretion of the government.
- Under the administration of former President Mwai Kibaki, Kenya kept away from this type of credit, with most of the support from institutions like the IMF and the World Bank coming in the form of project support.
Kenya has for the second time in less than six months reached out to the International Monetary Fund (IMF) for budget support to weather the coronavirus economic hardships.
IMF resident representative Tobias Rasmussen said the government had asked the Brettonwoods institution for another loan following the $739 million (Sh79.3) billion received in May that Kenya sought to help it respond to the economic shocks caused by the pandemic.
This signals the gravity of the country’s rapidly deteriorating cash-flow situation that is marked by falling revenues and worsening debt service obligations.
Revenue collection underperformed by Sh40 billion in the first two months of the financial year, July and August, amid the coronavirus-related disruptions.
The type of credit Kenya has sought from the IMF is a quick-disbursing facility where money flows straight into the budget to top up the public purse and is used at the discretion of the government.
Under the administration of former President Mwai Kibaki, Kenya kept away from this type of credit, with most of the support from institutions like the IMF and the World Bank coming in the form of project support.
“Following up on the support provided by the IMF in May under our Rapid Credit Facility (RCF), the Kenyan authorities have expressed interest in a Fund arrangement. IMF staff is in discussions with the authorities toward such an arrangement,” Mr Rasmussen told the Business Daily in an e-mail response.
The budget support funding is not tied to specific projects and can be used to fund politically important activities.
This comes amid a spike in Covid-19 cases that has seen infections jump 45 percent to 56,601 over the past month and deaths 42 percent to 1, 027.
This could trigger fresh restrictions from the government, risking reducing economic activity and denying the Kenya Revenue Authority (KRA) opportunities to grow tax collection.
Kenya’s economy shrank by 5.7 percent in the second three months of 2020, its first quarterly contraction since the global financial crisis 12 years ago, as the Covid-19 pandemic shut businesses and kept people at home.
The Treasury expects growth of less than 2.5 percent compared to 5.4 percent last year, and international institutions are making lower forecasts.
Tax collections in the three months to September dropped 14.69 percent to Sh317.6 billion, raising fears Kenya’s budget deficit for this financial year could increase due to revenue shortfalls.
The Treasury is September said it was in early talks with the World Bank for the provision of an additional budgetary support loan, which was potentially going to be used in the 2021/22 fiscal year.
The loan will be the third from the World Bank after the Washington-based lender started issuing such financing to Kenya last year.
The Jubilee administration looks set to borrow an average of Sh2.5 billion daily before the end of President Uhuru Kenyatta’s final term in August 2022, highlighting its growing appetite for foreign debt.
Treasury chiefs project in a draft Budget Review and Outlook Paper new loans of Sh1.87 trillion in the two years to June 2020 or Sh2.5 billion daily, pushing Kenya’s debt to Sh8.06 trillion.
If that comes to pass, Mr Kenyatta will have borrowed at least Sh6.1 trillion to implement his manifesto in 10 years in power having inherited slightly more than Sh1.89 trillion in June 2013.
The Jubilee administration has ramped up spending since 2013 to build new roads, a modern railway, bridges and electricity plants, driving up borrowing to plug the budget deficit.
The increased debt has seen Kenya commit more than half of taxes to paying loans, leaving little cash for building roads, affordable housing and revamping of the ailing health sector.
But faced with revenue shortfalls amid the coronavirus-related disruptions and the push to complete projects ahead of Mr Kenyatta’s exit, the Treasury is expected to accelerate borrowing over the next two years.
The Parliamentary Budget Office (PBO) – which advises lawmakers on financial and budgetary matters – says underperformance in revenue due to the Covid-19 pandemic is likely to drive Kenya’s debt beyond the Sh9.0 trillion legal threshold, a year after Mr Kenyatta leaves power.
“In previous financial years, the primary balance grew on account of significant expenditure on infrastructural projects, energy production as well as social expenditures,” the PBO wrote in a budget watch report earlier this month.
“The impact of Covid-19 on the economy is expected to adversely affect revenue generation. Given the current and projected expenditure demands, it is estimated that the Kenyan debt stock could reach Sh9.2 trillion in FY 2022/23.”
Kenya plans to spend Sh904.7 billion on debt repayments this financial year ending June 2021 from Sh707.8 billion the previous year against expected taxes of Sh1.52 trillion.
This means that nearly 60 percent of taxes will be committed to debt repayments.