President William Ruto’s inaugural 2023/24 budget is set to rise by Sh162 billion or 4.3 percent to Sh3.9 trillion from the Sh3.7 trillion expenditure plan earlier approved in June.
The budget bust is partly attributed to carryover spending from the concluded 2022/23 fiscal cycle and a host of regular expenditures that go into the day-to-day running of both the counties and the national governments.
For example, recurrent expenditure, including conditional transfers to counties, is estimated to rise the fastest at 5.7 percent to Sh2.68 trillion from an approved Sh2.53 trillion.
Development spending will meanwhile edge up marginally to Sh827 billion from Sh814 billion while the Equalisation Fund, which supports basic services in marginalised areas, rises to Sh11 billion from Sh8 billion.
The higher spending target is expected to be funded partly by increased revenues, which are now expected to rise to Sh3 trillion from 2.9 trillion, with the growth in collections coming from higher ministerial appropriations in aid that are now estimated at Sh431 billion from Sh414 billion.
Ordinary revenue represented by nettings from the Kenya Revenue Authority (KRA) is estimated to remain unchanged at Sh2.571 trillion.
Subsequently, the Treasury has raised its borrowing target to meet the expanded budget. Net financing rises to Sh860 billion from Sh714 billion, with estimated net foreign financing edging upwards from Sh131 billion to Sh449 billion. The target for domestic financing has nevertheless eased slightly to Sh411 billion from Sh583 billion.
The projected fiscal deficit will equally expand to an equivalent 5.4 percent of GDP -- one percentage point higher than the approved deficit of 4.4 percent.
The new deficit is likely to get the new administration concerned about its initial fiscal consolidation path, despite falling below the 5.6 percent gap realised across the 2022/23 financial year.
The Treasury says the new spending estimates do not significantly deviate from the government’s fiscal programme into the medium term.
“The national government fiscal projections for the 2023 BROP are largely consistent with the 2023 Budget Policy Statement estimates and shall inform the projections for the 2024/25 financial year budget estimates and the medium term. The government will not deviate from the fiscal responsibility principles but will make appropriate modifications to the financial objectives in the 2024 BPS to reflect changing circumstances,” the Treasury stated in its draft 2023 Budget Review and Outlook Paper.
The new administration has been forced to carry over Sh77.5 billion in expenditures from the last fiscal cycle from a combination of low-budget absorption and revenue underperformance.
Total revenues in the 2022/23 financial year, inclusive of external grants, rounded off to Sh2.383 trillion against a target of Sh2.520 trillion to record a shortfall of Sh136.7 billion.
The shortfall in revenue collection has been attributed to an uncertain operating environment related to the August 2022 General Election, and the negative impact of geopolitics and supply chain disruptions.
Broad tax categories, including excise duty, and domestic and import VAT, were off the target in the fiscal year. On the spending side, total expenditure and net lending in the period closed at Sh3.221 trillion against a target of Sh3.366 trillion.
“The shortfall was attributed to low spending on both recurrent and development expenditure items. There was delayed disbursement of project funds and a shortfall in domestic borrowing resulting in unfunded expenditure items. This led to a carryover of Sh77.5 billion during the period under review,” the Treasury said.
In July, the government signalled the first 2023/24 supplementary budget would come as soon as October to partly provide resources for the carryover of unpaid bills at the end of the cycle to June.
Whilst the draft Budget Review and Outlook Paper proposes to increase both spending and borrowing levels, the expected supplementary budget is expected to instil confidence in the country’s ability to implement fiscal prudence.
“They (Kenyan authorities) intend to submit to Parliament these contingency measures by the end of October 2023 to support confidence in fiscal consolidation and the continued reduction of Kenya’s debt vulnerabilities,” the IMF stated in a July report.
Kenya’s budget deficit is expected to continue closing over the medium term, falling from 5.4 percent in the current cycle to 4.4 percent in the 2024/25 fiscal year before settling down at three percent of GDP in the 2026/27 fiscal year.
Over the same period, total revenues are expected to climb to Sh4.973 trillion or 20.2 percent of GDP.
Spending will nevertheless grow in tandem with revenues, with total expenditures estimated to rise to Sh5.781 trillion.
The expected growth in revenues is set to find support from recent tax measures, including the 2023 Finance Act that has provisions for the taxation of digital assets and digital content monetisation.
The Medium Term Revenue Strategy, which is presently at the public participation stage, is further expected to anchor domestic revenue mobilisation.