The government has increased its borrowing target for the fiscal year starting July to Sh597 billion, just hours before National Treasury Cabinet Secretary Njuguna Ndung’u reads his Budget speech.
This was an increase of Sh82.3 billion from a deficit of Sh514.7 billion that Prof Ndung'u had earlier tabled in the National Assembly, an indicator that the tax collection target would equally be reduced downwards.
If the tax collection target is not reduced, the spending target of Sh2.95 trillion will be pushed up.
In a Cabinet despatch released on Thursday, the government said the reduction was in line with President William Ruto's aim of reducing the country’s debt vulnerabilities by increasing tax collection while trimming spending, or what is known as fiscal consolidation.
“In line with the administration’s fiscal consolidation strategy, which seeks to reduce government borrowing, and in pursuit of the aspiration to achieve a balanced budget by 2027, the proposed budget consolidates these efforts by reducing the budget deficit by nearly 50 percent,” read the despatch.
“This is realised through reduction of the deficit from Sh1 trillion in the financial year 2021/22, Sh925 billion in the financial year 2023/24 to Sh597 billion in the financial year 2024/25,” added the communiqué.
A budget deficit of Sh514.7 billion was quite ambitious, given that the government borrowing in recent times had tended to trend above Sh700 billion.
Kenyans will also have to wait for Prof Ndung’u’s speech to know what the government expects to borrow from the domestic and external creditors.
With a budget deficit of Sh514.7 billion, the Treasury expected to borrow Sh256.8 billion externally and Sh257.9 billion from the domestic market.
While appearing before the National Assembly’s Finance Committee, National Treasury Principal Secretary Chris Kiptoo defended the additional taxes and an expanded tax base, arguing Kenya’s debt situation is set to turn for the worst in the medium term.
“Our capacity to carry more debt is not sustainable so we have to raise revenue and cut expenditure. Any further accumulation of debt would mean we will have no fiscal space,” said Dr Kiptoo.
The need to reduce Kenya’s debt appetite is part of the programme that the country has with the International Monetary Fund (IMF), even as it tries to narrow the budget hole through increased domestic revenue mobilisation.
Besides increased tax collection, Dr Ruto’s government is also targeting increased collection of fees and fines by ministries, departments and agencies in the upcoming budget.
To collect the additional taxes, the Treasury has come up with various contentious amendments through the Finance Bill 2024.
A majority of Kenyans who made their submissions before the Finance Committee are opposed to some of the amendments.
These proposals, including a 2.5 percent car tax, 16 percent value added tax (VAT) on banking services and a new eco levy, have kicked up a storm from the business community, consumers, NGOs and churches.
There is also the proposal to introduce VAT on bread and 25 percent excise duty on both crude and refined vegetable oils.
