Fitch says that weak growth in revenue, largely tax receipts, presents the biggest challenge to Kenya’s fiscal consolidation plan.
Ordinary revenue fell short of Sh774.99 billion target by Sh52.70 billion in the first half of the current financial year ending in June.
This came on the back of slower recovery in private sector activity from the twin shocks of prolonged elections and biting drought in 2017.
The taxman’s below-par showing stands in the way of the Treasury’s plan to halve budget deficits and slow down accumulation of debt stock in five years, analysts at Fitch Ratings have said.
The New York-based credit rating and research firm, usually invited by Kenyan authorities to assess risks in the economy, has in its latest report cast doubt on Kenya’s ability to more than halve fiscal deficit in five years.
Kenya targets to reduce fiscal deficit from 7.2 percent of gross domestic product (GDP) in the year ended June 2018 to 6.3 percent in the current year ending June, 5.6 percent in the year starting July 2019 and further to 3.1 percent in the year ending June 2023.
Fitch says that weak growth in revenue, largely tax receipts, presents the biggest challenge to Kenya’s fiscal consolidation plan.
Consolidation is usually characterised by minimal deficit in the budget, which then lowers the appetite for borrowing cash to support expenditure plans.
“A combination of structural and administrative issues has caused revenue/GDP to stagnate in recent years. Some of this is the result of agriculture being a large component of the economy and most of the non-export agricultural output coming from untaxed smallholders,” Fitch analysts wrote in the report published on April 30.
Tax exemptions
“In addition, weak tax compliance and the expansion of tax exemptions have muted domestic revenue growth.”
Ordinary revenue fell short of Sh774.99 billion target by Sh52.70 billion in the first half of the current financial year ending in June on the back of slower recovery in private sector activity from the twin shocks of prolonged elections and biting drought in 2017.
As a share of economic output (GDP), ordinary revenue — comprising taxes and non-tax streams such as levies, rent of buildings, fines and forfeitures — has been falling since the year ended June 2014, Treasury statistics show.
The revenue-to-GDP ratio, which has for years hovered around 18 percent, dropped to 17.3 percent in the year ended June 2018, pointing to shrinking share of government’s take from the economic output.
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Note: The results are not exact but very close to the actual.
