Brace yourself for more taxes, high debt burden in Sh3trn Yatani budget

The 2021/22 budget is Sh216 billion more than the Sh2.81 trillion expenditure estimates for the current 2019/20 financial year.

The executive will draw Sh1.92 trillion, the biggest slice of the cake, followed by Parliament which is set to receive Sh37.8 billion and the Judiciary, which gets a marginal cut to Sh17.9 billion.

Counties have been allocated Sh326.5 billion while the Consolidated Fund Services (CFS), which pays debt, civil servants pension and salaries for constitutional commissions will get Sh724.5 billion.

The BPS is a Government policy document that sets out the broad strategic priorities and policy goals to guide the National Government and the County Governments in preparing their budget estimates for the subsequent financial year and over the medium term.

Massive deficit

The new BPS reveals that the huge expenditure outlay will leave the country with a massive deficit of about Sh1 trillion, which will be funded through borrowing.

Kenyans have a window to present their views on the document in keeping with the constitutional requirement for public participation, before it is presented to Parliament for debate and approval by MPs.

Mr Yatani projects that the government will have a revenue shortfall (inclusive of grants) of Sh 937.6 billion, or 7.5 percent of the gross domestic product (GDP) compared to the estimated overall fiscal deficit of Sh1 trillion (9.0 percent of GDP) in the current financial year that was hard hit by the Covid-19 pandemic.

The policy statement notes that this revenue deficit will be financed by net external borrowing of Sh345.5 billion (2.8 percent of GDP), and net domestic borrowing of Sh592.2 billion (4.7 percent of GDP).

Interest payments on public debt have impacted a huge strain on East Africa's largest economy in the past decade as the Jubilee government piled up debt in the hundreds of billions of shillings every year. As at November 2020, the total stock of public debt stood at Sh 7.2 trillion, surging by Sh520 billion in just six months. 

Recurrent budget

If this rate of borrowing holds, the country will close the current financial year at nearly Sh8 trillion debt in June, which leaves it with little headroom to hit the ceiling. With another Sh937 billion loans planned, The Treasury is sure to seek Parliament’s approval of a lifting of the Sh9 trillion ceiling before June 2022.

The national government recurrent budget is set at Sh1.97 trillion (15.8 percent of GDP) and development or capital outlay of Sh611 billion (4.9 percent of GDP).

The Treasury has outlined four criteria used in apportioning the capital budget in the coming year. One is an emphasis on the completion of on-going capital projects and in particular infrastructure projects with high impact on poverty reduction, equity and employment creation.

Priority was also given to adequate allocations for donor counterpart funds, which is the portion that the Government must finance in support of the projects financed by development partners.
Consideration was also given to interventions supporting Post-Covid 19 recovery, while the fourth priority is on policy interventions covering the entire nation, regional integration, social equity and environmental conservation.

Mr Yatani is hoping to generate total revenues, including Appropriation-in-Aid (A.i.A) of Sh1.98 trillion, (15.9 percent of GDP) up from the estimated Sh1.82 trillion (16.4 percent of GDP) in the FY 2020/21, pointing to a higher tax bill for Kenyans.

"Revenue performance will be underpinned by on-going reforms in tax policy and revenue administration," the BPS notes.

It says the ordinary revenues will amount to Sh1.76 trillion in 2021/22 from the estimated Sh1.57 trillion (14.1 percent of GDP) in FY 2020/21.

Economic recovery

The Treasury CS says the policy measures outlined in the 2021 BPS are aimed at stimulating economic recovery.

"Building on the gains made under the Economic Stimulus Programme, the Government will roll out the Post Covid-19 Economic Recovery Strategy (ERS) which will mitigate the adverse impacts of the Pandemic on the economy and further re-position the economy on a steady and sustainable growth trajectory," Mr Yatani says.

He says the policies in the document have also been anchored on the Medium-Term Plan III of the Vision 2030 as prioritised in the "Big Four" Agenda.

"The focus of the policies is to continue providing an enabling environment for economic recovery to safeguard livelihoods, jobs, businesses and industrial recovery," Mr Yatani notes.

The CS says that in this respect, the Government will strengthen implementation of programmes and measures that ensure a more inclusive growth, foster macroeconomic stability, and avail liquidity to the private sector including initiating innovative products to boost credit to Micro, Small and Medium Enterprises (MSMEs).

Mr Yatani notes that the government has had to critically review its existing programmes and policies to ensure that they are not only consistent with our development agenda but also informed by emerging realities brought about by the emergence of Covid-19 Pandemic.

The BPS notes that revenue collection to December 2020 declined by 14 percent compared to a growth of 17.1 percent in December 2019.

Public spending

"This decline is attributed to the difficult operating environment due to the Covid-19 pandemic, which has been adversely affecting revenue performance from March 2020," the BPS notes.

The cumulative total revenue - inclusive of Ministerial Appropriation in Aid (AiA) amounted to Sh800.1 billion against a target of Sh 907.7 billion, with shortfalls recorded in both ordinary revenues (Sh75.8 billion) and Ministerial A-I-A (Sh31.8 billion).

Mr Yatani says that detailed budgets of all Government Ministries, Departments and Agencies (MDAs) have been scrutinised to curtail growth of recurrent budgets especially budget items under the category referred to as use of goods and services, ensure completion of ongoing projects with particular emphasis placed on projects nearing completion to ensure that citizens benefit from such public investments.

"Further, budgets have been assessed to ensure that projects processed for funding comply with the Public Investment Management Guidelines issued by the National Treasury so as to increase efficiency and effectiveness of public spending.

The BPS notes that in 2020, the Kenyan economy was adversely affected by the outbreak of Covid-19 Pandemic and the swift containment measures, which have not only disrupted the normal lives and livelihoods, but also to a greater extent business and economic activities.

As a result, our economy is estimated to slow down to around 0.6 percent in 2020 from a growth of 5.4 percent in 2019.

"Looking ahead, the economy is projected to recover and grow by about 6.4 percent in 2021 and above 6.2 percent over the medium term."

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