Economists say that the government is likely to be forced into cutting development expenditure due to the difficulty of slashing the recurrent expenditure, especially wages.
Treasury CS Henry Rotich expects to cut the deficit in the 2019/2020 financial year to Sh572.2 billion or five percent of gross domestic product (GDP), from the projected Sh635.3 billion (6.3 percent of GDP) in the year ending June 2019.
In the 2020/2021 fiscal year, the deficit is projected to contract further to 3.9 percent of GDP or Sh494.2 billion.
Kenya is likely to struggle to meet its ambitious target of progressively bringing down the budget deficit due to political constraints on reducing public expenditure, analysts have warned.
Economists at global ratings agency Moody’s and risk and research firm Stratlink Africa say that the government is likely to be forced into cutting development expenditure due to the difficulty of slashing the recurrent expenditure, especially wages.
“Overall, we expect the pace of fiscal adjustments to remain gradual at best as growth implications, political considerations and budget rigidities complicate consolidation efforts in some countries such as eSwatini (Swaziland), Namibia and Kenya,” said Moody’s in its 2019 outlook for Sub-Saharan Africa.
“A number of countries — such as Kenya and Cameroon — will likely rely on cuts to capital expenditures rather than reducing recurrent expenditures or increasing revenue mobilisation to achieve their fiscal targets.”
Treasury CS Henry Rotich expects to cut the deficit in the 2019/2020 financial year to Sh572.2 billion or five percent of gross domestic product (GDP), from the projected Sh635.3 billion (6.3 percent of GDP) in the year ending June 2019.
In the 2020/2021 fiscal year, the deficit is projected to contract further to 3.9 percent of GDP or Sh494.2 billion.
The cut is, however, largely based on increasing revenue at a higher pace than expenditure on the back of tax reforms. In the 2019/20 fiscal year, Mr Rotich has projected that revenue will rise by 13.6 per cent to Sh2.08 trillion, versus a 7.6 per cent increase in expenditure to Sh2.7 trillion.
Stratlink analysts warn, however, that spending on the Big Four agenda and other infrastructure projects such as major roads and the continued development of the Standard Gauge Railway will likely test the resolve to keep a lid on costs.
“New taxes brought into law last year, such as higher excise duty on bank transfers and increased levies on mobile money transfers, aim to increase revenue collection.
However, delays in implementation and the reduction in VAT on fuels from 16 to eight percent due to public opposition, pose headwinds to revenue generation,” said Stratlink in their January Africa market update.
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